UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549


____________




FORM
10-K




(Mark
One)




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




For
the year ended December 31, 2009




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:  001-32865


_________________




KSW,
INC.


(Exact
Name of Registrant as Specified in its Charter)




Delaware
                (State
      or Other Jurisdiction
                of
      Incorporation or Organization)
              11-3191686
                (I.R.S.
      Employer
                Identification
      No.)37-16
      23rd Street, Long Island City, New York
              11101(Address
      of Principal Executive Offices)
              (Zip
      Code)




Registrant’s
telephone number, including area code:  (718) 361-6500




Securities
registered pursuant to Section 12(b) of the Act:




TITLE OF EACH CLASS
            
            NAME OF EACH EXCHANGE ON WHICH REGISTEREDCOMMON STOCK
            
            NASDAQ GLOBAL MARKET$.01 par
      value




SECURITIES
REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:  NONE




Indicate
by check mark if the Registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈  No
x




Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.  Yes  ̈  No
x











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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.  x




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 during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  ̈  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




The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant on June 30, 2009 was $15,052,375 (based on a
price of $ 2.73 per share).




As of
March 19, 2010, there were 6,240,625 shares of Common Stock, $.01 par value per
share, outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE:




The
Registrant’s definitive proxy statement to be filed with the Securities and
Exchange Commission (the “Commission”) pursuant to Regulation 14A within 120
days after the end of the Registrant’s last fiscal year is incorporated by
reference into Part III of this Annual Report on Form 10-K.










FORWARD-LOOKING STATEMENTS
                        2PART I
                        
                        3ITEM 1.
                        BUSINESS
                        3ITEM 1A.
                        RISK FACTORS
                        7ITEM 1B.
                        UNRESOLVED STAFF COMMENTS
                        9ITEM 2.
                        PROPERTIES
                        9ITEM 3.
                        LEGAL PROCEEDINGS
                        10ITEM 4.
                        (REMOVED AND RESERVED)
                        10PART II
                        
                        11ITEM 5.
                        MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
      MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
                        11ITEM 6.
                        SELECTED FINANCIAL DATA
                        12ITEM 7.
                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS
                        13ITEM 7A.
                        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                        27ITEM 8.
                        FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA
                        27ITEM 9.
                        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE
                        27ITEM 9A (T).
                        CONTROLS AND PROCEDURES
                        28ITEM 9B.
                        OTHER INFORMATION
                        29PART III
                        
                        29ITEM 10.
                        DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
                        29ITEM 11.
                        EXECUTIVE COMPENSATION
                        29ITEM 12.
                        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
                        30ITEM 13.
                        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
                        30ITEM 14.
                        PRINCIPAL ACCOUNTING FEES AND SERVICES
                        30PART IV
                        
                        30ITEM 15.
                        EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES
                        30SIGNATURES
                        33





Table of Contents




FORWARD LOOKING STATEMENTS





Certain
statements contained under “Item 1 - Business”, “Item 7 - Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
elsewhere in this Form 10-K regarding matters that 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”, “may”,
“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 to
differ materially from any expected results, performance or achievements
discussed or implied by such forward-looking statements. Many of the risks,
uncertainties and other important factors that could cause actual results to
differ materially from expectations of the Company are described under “Item 1A
- Risk Factors” in this Form 10-K. 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.





There is
no assurance that any of the actions, events or results of the forward-looking
statements will occur, or if any of them do, what impact they will have on the
Company’s results of operations or financial condition.  Because of
these uncertainties, you should not put undue reliance on any forward-looking
statements.  Other than as required by applicable law, the Company
disclaims any obligation to update or to announce publicly the result of any
revisions to any of the forward-looking statements to reflect future events or
developments.





2
 Table of Contents





PART I




ITEM 1.        BUSINESS




General.  KSW,
Inc., a Delaware corporation (the “Company” or “KSW”), furnishes and installs
heating, ventilating and air conditioning (“HVAC”) systems and process piping
systems for institutional, industrial, commercial, high-rise residential and
public works projects.  The Company does not actively pursue projects
under $3,000,000.  The Company also serves as a mechanical trade
manager, performing project management services relating to the mechanical
trades.  The Company conducts operations through its wholly-owned
subsidiary, KSW Mechanical Services, Inc. (“KSW Mechanical”). The Company’s
common stock is traded on the Nasdaq Global Market Exchange (“NASDAQ”) under the
symbol “KSW”.




During
the current recession, banks have been less likely to lend money for
construction projects, and investors appear to be less likely to contribute
capital to new construction projects.  Private construction in New
York City, which is dependent on the financial institutions and markets, has
been affected by this crisis.  Therefore, the Company has shifted its
focus to opportunities in the public and institutional construction sectors,
where the Company has successfully worked in the past.




The
federal government’s stimulus package is expected to increase construction
spending in the future.  While there is no guarantee that the Company
will receive any of this new work as a result of the stimulus package, the
Company has successfully competed for public work in the past.  The
Company believes its high cash reserves and strong balance sheet should help it
weather this economic crisis.




Some of
the Company’s ongoing institutional projects include:  Mount Sinai
Center for Science and Medicine, Blythedale Children’s Hospital and the Morgan
Stanley Children’s Hospital of New York Pediatric Emergency Department
Renovation. The Company is also working on public projects such as the World
Trade Center Chiller Plant, and several projects at Brookhaven National
Laboratories.  The Company is also installing the HVAC systems at a
hotel/luxury apartment project at 42nd Street
and 10th Avenue
in Manhattan.




The
Company’s primary strategic objectives are to increase its revenues and
profitability in its present business.  While cash reserves are
important in this economic climate, the Company may look to expand its business
into new geographic areas in the Northeastern United States or acquire
businesses which would be complementary to its current line of
business.  The Company may also pursue acquisitions outside its
current lines of business for greater diversification.




Prior to
the current credit crisis and economic recession, the Company focused on the New
York City private construction market and had been successful in obtaining
projects from private owners and construction companies by utilizing its value
engineering and trade management skills.  Many of these projects are
obtained from repeat customers, who invite the Company to participate in the
project while the project is still in the design phase, or to assist in bringing
a project’s budget in line with the customer’s requirements.  The
amount of private construction projects available to the Company has decreased
with the recession.





3
 Table of Contents





On
private projects, the Company provides value engineering assistance, whereby the
Company uses its experienced staff to recommend economical changes to streamline
HVAC and process piping systems.  These changes reduce costs, but
still yield the same results as the original plans.  The Company’s
ability to provide this service has become increasingly recognized in the
industry and has resulted in the Company’s ability to secure projects without
competitive bidding. The Company believes that this service will provide
additional opportunities in the future, since difficult economic times create an
even greater need for a project to be less costly for both the owner and the
project’s lending institution.  Certain governmental agencies have
begun to incorporate value engineering provisions in their bid
documents.




The
Company’s management pioneered the concept of managing the mechanical trade
portion of large construction projects.  On larger complex projects
(generally those having a mechanical portion valued at over $10,000,000), it is
often beneficial for a construction manager to lock in the costs of the
mechanical portion of the contract prior to completion of the contract
documents.  By engaging the services of a trade manager, the Company
believes owners can more accurately evaluate design alternatives so that the
completed construction documents balance costs and project
objectives.  As a mechanical trade manager, the Company performs a
construction manager function for the mechanical trade portion of a
project.  The Company divides the mechanical portion of the contract
into bid packages for subcontractors and equipment, negotiates subcontracts and
coordinates the work. The Company believes that this coordination provides a
significant benefit in keeping a project on schedule and within
budget.




As a
mechanical trade manager, the Company may subcontract parts of a large project
to different subcontractors, thereby increasing competition on projects and
reducing costs by allowing smaller contractors to compete for the subcontract
work.  On some projects, the Company may self-perform a portion of the
work for a fixed price.  The Company believes customers benefit by
having a single source responsible for the cost, coordination and progress of
the mechanical portion of the projects. Although trade management is typically
available only on large jobs, the Company believes there is opportunity for
expanding this line of business.




On trade
management projects, the Company provides a guaranteed maximum price (“GMP”) to
its customer for its scope of responsibility.  The Company controls
the GMP by obtaining price quotes from potential suppliers and subcontractors,
requiring payment or performance bonds from major subcontractors and adding a
contingency allowance to these price quotes before the Company submits its
GMP.  The Company also works to control costs because it is a
mechanical contractor and can perform some of the guaranteed work on its own
should bid prices exceed its estimate. These costs are subject to certain risk
factors discussed in “Item 1A – Risk Factors”.




While
trade management projects provide a net profit margin lower than that for
construction projects, the Company believes there is generally less risk
associated with trade management projects because there is a contingency fund,
which can be drawn from if necessary.  A contingency fund is a line
item which the Company includes in the GMP to account for any contingencies the
Company may not have anticipated in estimating the GMP.  In the event
the Company’s costs exceed the relevant line items quoted in the GMP, the
Company may draw from the contingency fund to cover such
expenses.  The Company is at risk for any costs in





4
 Table of Contents





excess of
the GMP.  There is no assurance that potential cost overruns will not
exceed this contingency.




Operations.For
all projects, the Company develops a comprehensive project budget using what it
believes is a proven cost estimating system.  Projects are divided
into phases and line items indicating separate labor, equipment, material,
subcontractor and overhead cost estimates.  As a project progresses,
the Company’s project managers are responsible for planning, scheduling and
overseeing operations and reviewing project costs compared to the estimates.
These costs are tracked on a monthly basis. The Company’s costs have been and
may in the future be impacted by lower than expected labor productivity and
higher than expected material costs.




The
Company continues to bid on public projects.  It has received letters
of approval as an authorized bidder by various government agencies, including
the New York City Transit Authority, the New York City Health and Hospitals
Corporation, the New York City School Construction Authority, the New York City
Housing Authority, the Port Authority of New York and New Jersey and the New
York State Dormitory Authority.




Markets.The Company competes for
business primarily in the New York City metropolitan area.  However,
the Company has performed work outside of that area in the past.




Backlog.The Company
had a backlog (anticipated revenue from the uncompleted portions of awarded
contracts) totaling approximately $121,500,000 as of December 31, 2009, compared
to $62,500,000 as of December 31, 2008, and approximately $111,300,000 as of
December 31, 2007.




The Company believes its remaining
backlog is firm, but in this unsettled economic time, delays or postponement of
additional projects are not within the Company’s control.




A portion
of the Company’s anticipated revenue in any year is not reflected in its backlog
at the start of the year because some projects are awarded and performed in the
same year.  The Company believes that approximately $55,000,000 of the
existing backlog at December 31, 2009, is not reasonably expected to be
completed during the next fiscal year.  The schedule for each project
is different and subject to change due to circumstances outside the control of
the Company. Accordingly, it is not reasonable to assume that the performance of
backlog will be evenly distributed throughout a year. The Company believes that
its backlog is firm, notwithstanding provisions contained in the contracts which
allow customers to modify or cancel the contracts at any time, subject to
certain conditions, including reimbursement of costs incurred in connection with
the contracts and the possible payment of cancellation fees.




The
Company is actively seeking new contracts to add to its
backlog.  Management believes that its value engineering services will
continue to assist the Company in obtaining new contracts.




Competition.  The
mechanical contracting market is highly competitive. There are many larger
regional and national companies with resources greater than those of the
Company.  However, some of these large competitors are unfamiliar with
the New York City metropolitan area.  On private and institutional
projects, the Company believes it competes favorably with such companies because
of its reputation in the New York City area and its knowledge of
the





5
 Table of Contents





local
labor force and its ability to value engineer projects.  There are
also many smaller contractors and subcontractors in the New York City
metropolitan area, who may also compete for work.  The Company
believes there are barriers to entry for smaller competitors, including bonding
requirements, relationships with subcontractors, suppliers and
unions.




Regulations.  The
construction industry is subject to various governmental regulations from local,
state and federal authorities, such as the Occupational Safety and Health
Administration (“OSHA”) and environmental agencies.  The Company is
also governed by state and federal requirements regarding the handling and
disposal of lead paint, but the financial impact of complying with such
requirements cannot be predicted at this time because it varies from project to
project.  The Company must also comply with regulations as to the use
and disposal of solvents and hazardous wastes, compliance with which are a
normal part of its operations.  The Company does not perform asbestos
abatement, but has occasionally subcontracted that part of a contract to duly
licensed asbestos abatement companies with the Company being named as an
additional insured on the asbestos abatement company’s liability insurance
policy.  The Company has not incurred any liability for violations of
environmental laws.




Employees.  At
December 31, 2009, the Company had approximately 43 full-time office and project
support employees.  The Company also employs field employees, who are
union workers.  The number of field union workers employed varies at
any given time, depending on the number and types of ongoing projects and the
scope of projects under contract.  The Company hires union labor for
specific work assignments and can reduce the number of union workers hired at
will with no penalty.




The
Company pays benefits to union employees through payments to trust funds
established by the unions.  The Company’s obligation is to pay a
percentage of the wages of union workers to these trust funds.  The
Company is not liable for under funding of these union plans.  The
Company provides its full-time office employees, not subject to collective
bargaining agreements, with medical insurance benefits and a discretionary
matching 401(k) plan.  In 2009, the Company matched 25% of its
employees’ yearly 401(k) contributions.




Dependence Upon
Customers.   At any given time, a material portion of the
Company’s contract revenue may be generated from a single customer through one
large contract or various contracts.  The Company’s customer base can
vary each year based on the nature and scope of the projects undertaken in that
year.




For the
year ended December 31, 2009, work under contracts with M.D. Carlisle
Construction Corp., Tishman Construction, Glenwood Management Corporation and
related entities, Levine Builders and Bovis Lend Lease LMB, Inc.,
constituted  23%,  17%,  12%, 12%
and  11% of the Company’s total revenues, respectively.




For the
year ended December 31, 2008, work under contracts with Bovis Lend Lease LMB,
Inc., Gotham Construction Co., LLC and Newmark Construction Services, LLC and
related entities, constituted 27%, 16% and 11% of the Company’s total revenues,
respectively.





6
 Table of Contents





For the
year ended December 31, 2007, work under contracts with Bovis Lend Lease LMB,
Inc., Newmark Construction Services, LLC and related entities, and Plaza
Construction Corporation constituted 46%, 20% and 13% of the Company’s total
revenues, respectively.




Historically,
a portion of the Company’s revenue has been generated from contracts with
federal, state and local governmental authorities.  The Company’s
current revenue and backlog does not include any contracts directly with these
governmental authorities, although the Company is part of a Joint Venture that
is performing a contract with the Port Authority of New York and New Jersey to
construct a chiller plant at the World Trade Center site.




As is
customary and required in the industry, the Company is often requested 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 larger the project and/or the number of projects
under contract, the greater the requirements are for bonding, net worth and
working capital.  The Company generally pays a fee to the bonding
company of an amount approximately 1% of the amount of the contract to be
performed.  Since inception, the Company has neither been denied any
request for payment or performance bonds, nor has a bonding company been
required to make a payment on any bonds issued for the Company.  At
December 31, 2009, approximately $50,500,000 of the Company’s backlog was
bonded.




Other
Matters.
The Company does not own any patents or patent rights.  The Company’s
business is not subject to large seasonal variations. The Company did not expend
funds for research and development during 2009, 2008 and 2007, and anticipates
no research and development expenses in 2010.




ITEM 1A.      RISK
FACTORS




The Company is subject to a variety of
risks, including the risks described below as well as adverse business
conditions.  The risks and uncertainties described below are not the
only ones facing the Company.  Additional risks and uncertainties, not
known or described below, which have not been determined to be material may also
impair the Company’s business operations.  You should carefully
consider the risks described below together with all other information in this
report, including information contained in the “Forward-Looking Statements,”
“Business”, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Quantitative and Qualitative Disclosure about Market
Risk” sections.  If any of the following risks occur, the Company’s
financial condition and results of operations could be adversely
affected.  Such events may cause actual results to differ materially
from expected and historical results, and the trading price of the Company’s
stock could decline.




The
economic downturn, specifically in the New York City metropolitan area, has
resulted in a decrease in construction spending in the private and public
sectors in the market the Company serves.  Several of the Company’s
projects have been put on hold or terminated, and there is no assurance as to if
and when work on those projects will resume.  Additional projects
could be delayed or cancelled, which would reduce the Company’s future
revenues.





7
 Table of Contents





The
Company has a written employment agreement with Floyd Warkol, its Chairman and
CEO, which expires on December 31, 2011. The Company has no other current
employment or non-competition agreements with senior
management.  Because the Company relies on senior management’s
relationships with its customers and in the construction industry in New York
City, the failure to retain senior management would have a material adverse
effect on the Company’s business.




The Company’s continued ability to
obtain bonding is critical to its ability to bid on most public work and on
certain private projects.  The surety’s provision of bonding pursuant
to its arrangement with the Company is solely at the surety’s discretion, and
the arrangement with the surety is an at-will arrangement subject to
termination.  The Company’s inability to obtain surety bonds as needed
could have a material adverse effect on the Company.




The Company has in the past experienced
erosion in gross profit margins due to lower than anticipated labor productivity
and higher labor costs related to shortages of skilled labor and unforeseen
jobsite conditions.  There can be no assurance that these factors will
not affect productivity and profitability in the future.




The Company has in the past experienced
significant increases in the cost of steel piping materials, which is the
primary material used by the Company on projects.  Future increases
may impact the Company’s profit margins to the extent the Company is not able to
pass such increased costs on to its customers or lock-in prices under long-term
purchase agreements.




The Company relies on a relatively
small number of customers for a significant share of its
revenues.  The loss of business from any of these significant
customers could have a material adverse effect on the Company’s business and its
operating results.




The Company faces intense competition
due to the highly competitive nature of the mechanical contracting market that
could limit its ability to increase its market share and its
revenues.




During the construction period, owners
or general contractors may require the Company to perform certain work which is
a change to or in addition to the original contract.  Such work often
requires months to obtain formal change orders (including dollar
amounts).  Change orders are often the subject of dispute and
sometimes litigation.  The failure of an owner or general contractor
to issue change orders or make payments could delay receipt of receivables and
require litigation to collect sums due the Company.




Slow receipt of collections may also
result from financial difficulties of a general contractor or an
owner.  The Company’s inability to collect its contract balance on a
project could have a material adverse effect on its operating
results.




Although the Company’s operations are
not directly affected by inflation, both New York City and New York State have
large debt service burdens.  Inflationary pressures historically have
tended to result in a reduction in capital spending by both state and local
agencies; such capital expenditure reductions in turn could have a negative
impact on the Company’s revenues.





8
 Table of Contents





Failure of the Company’s subcontractors
or providers of equipment to perform as anticipated could have a negative impact
on the Company’s results.  The Company subcontracts a portion of its
contracts to specialty subcontractors, and the Company is ultimately responsible
for the successful completion of their work.  The Company also
utilizes equipment manufacturers and suppliers which are responsible for
delivering specified products on a timely basis.  Although the Company
utilizes highly respected companies and sometime requires performance bonds,
there is no guarantee that the Company will not incur a material loss due to
performance issues related to these arrangements.




During
the third quarter of 2009, a joint venture in which the Company has 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 agreement provides
that each partner will share equally any gains or losses resulting from the
project.  If the other partner is unable to perform its work, 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 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 in the
joint venture agreement, or the partner’s failure to pay its subcontractors and
suppliers.





Accounting for contract related
revenues and costs as well as other cost items requires management to make a
variety of significant estimates and assumptions.  Although the
Company believes it has sufficient experience and processes to enable it to
formulate appropriate assumptions and produce reliable estimates, these
assumptions and estimates may change significantly in the future, and these
changes could have a material adverse effect on the Company’s financial position
and results of operations.




The Company’s success depends on
attracting and retaining qualified personnel in a competitive
environment.  The single largest factor in the Company’s ability to
profitably execute its work is its ability to attract, develop and retain
qualified personnel.  The Company’s success in attracting qualified
personnel is dependent on the resources available, the impact of general
economic conditions on the labor supply, and the ability to provide competitive
compensation.




ITEM 1B.      UNRESOLVED STAFF
COMMENTS




Not Applicable.




ITEM
2.         PROPERTIES




Pursuant
to a Modification of Lease Agreement, dated as of May 1, 1998, the Company
leases office and warehouse space in Long Island City, New York, consisting of
18,433 square feet.  The lease had an initial annual base rent of
$173,000, with yearly rent increases of approximately 2%.  The lease
is a triple net lease and thus the Company will pay any increases in real estate
taxes over base year taxes, maintenance, insurance and utilities.  The
current lease





9
 Table of Contents





expires
on June 30, 2014.  The lease has a provision which allows the Company
to cancel the lease after one year.




The
Company also owns and occupies a building and a storage yard in Bronx, New York,
consisting of a 14,000 square foot building, including 4,000 square feet of
offices and 10,000 square feet of shop space.  It also owns and
occupies an adjacent 5,000 square foot storage yard.   At
December 31, 2009, the Company had an outstanding mortgage payable secured by
this property totaling $1,112,000.




The
properties are well maintained, adequate and suitable for their
purposes.




ITEM
3.         LEGAL
PROCEEDINGS




There are
no material pending legal proceedings to which the Company is a
party.





ITEM 4. (REMOVED
AND RESERVED)





EXECUTIVE OFFICERS OF THE REGISTRANT





Officers
of the Company serve at the pleasure of the Board of Directors. The name, age
and offices held by each of the executive officers of the Company as of December
31, 2009 were as follows:





Name
            
            Age
            
            TitleFloyd
      Warkol
            
            62
            
            Chief
      Executive Officer, President, Secretary and Chairman of the Board of
      DirectorsRichard
      W. Lucas
            
            43
            
            Chief
      Financial OfficerJames
      F. Oliviero
            
            63
            
            General
      CounselVincent
      Terraferma
            
            59
            
            Chief
      Operating Officer of KSW Mechanical




Mr. Floyd
Warkol has been employed as Chairman of the Board since December 1995 and as
President, Secretary and Chief Executive Officer of the Company and as Chairman
and Chief Executive Officer of KSW Mechanical since January 1994.




Mr.
Richard W. Lucas has been employed as the Chief Financial Officer of the Company
and KSW Mechanical since August 2002.  Since February 2006, Mr. Lucas
has been a Director of KSW Mechanical.




Mr. James
F. Oliviero has been employed as General Counsel of the Company and KSW
Mechanical since February 1998.




Mr. Vincent Terraferma has been
employed as Chief Operating Officer of KSW Mechanical since January
2003.  From December 1995 to December 2002, he was KSW Mechanical’s
Executive Vice President.





10
 Table of Contents





PART II





ITEM
5.         MARKET FOR REGISTRANT’S
COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES




Since
November 2007, the Company’s Common Stock has been quoted on the NASDAQ Stock
Market LLC’s Global Market under the symbol “KSW”.  Prior to November
2007, the Company’s Common Stock was quoted on the American Stock
Exchange.




At March
19, 2010, the Company had 6,240,625 shares of Common Stock issued and
outstanding, which were held by approximately 3,200 shareholders of record based
on shareholder lists provided by the Company’s stock transfer agent and
Broadridge Financial Solutions, Inc.




On March
9, 2010, the Company’s Board of Directors declared a cash dividend of $.10 per
share.  The dividend will be payable on May 24, 2010 to shareholders
of record as of April 26, 2010.




On June
2, 2009, the Company’s Board of Directors declared a cash dividend of $.10 per
share.  The aggregate amount of the dividend was $624,000, and was
paid on July 17, 2009 to stockholders of record as of June 29,
2009.




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




On May 8,
2007, the Company’s Board of Directors declared a 5% stock dividend pursuant to
which 293,265 additional shares were issued on June 11, 2007 to shareholders of
record as of May 24, 2007.  Cash was paid in lieu of issuing
fractional shares based on the last sales price of the Company’s stock on the
record date.  All references in the accompanying consolidated
financial statements to the weighted average number of common shares outstanding
and per share amounts are based on the retroactive effect of the stock
dividend.




The
following information on high and low bid data is provided for 2009 and 2008
based on intraday quotations:




2009
                
                
                2008Quarter
                
                High
                
                
                Low
                
                
                High
                
                
                LowFirst
                
                $
                3.05
                
                
                $
                2.00
                
                
                $
                7.04
                
                
                $
                5.54Second
                
                $
                2.94
                
                
                $
                2.21
                
                
                $
                5.95
                
                
                $
                4.61Third
                
                $
                4.42
                
                
                $
                2.59
                
                
                $
                5.19
                
                
                $
                3.00Fourth
                
                $
                3.92
                
                
                $
                3.26
                
                
                $
                5.30
                
                
                $
                1.79





11
 Table of Contents




These
prices represent bid prices, which are prices paid by broker dealers, and do not
include retail markups, markdowns or broker dealer commissions.




On
December 19, 2008, the Company announced that its Board of Directors had
approved a stock repurchase program that authorized the Company to buy up to
$1,000,000 of its Common Stock through open market purchases in compliance with
Rule 10b-18 under the Exchange Act through June 30, 2009. Under this stock
repurchase program, the Company purchased a total of 52,700 common shares at a
cost of $140,000.




ITEM
6.         SELECTED FINANCIAL
DATA




The
following information for the year ended December 31, 2009 is derived from the
consolidated financial statements audited by BDO Seidman, LLP, which are
included elsewhere herein.




The
following information for the years ended December 31, 2008 and 2007 is derived
from and qualified in its entirety to, the consolidated financial statements for
the years audited by J.H. Cohn LLP, which are included elsewhere
herein.  The following information for the years ended December 31,
2006, and 2005 is derived from and qualified in its entirety to the consolidated
financial statements for those years audited by  Marden, Harrison
& Kreuter CPAs P.C..  Each of the previously mentioned
consolidated financial statements is included elsewhere herein or in prior
years’ annual reports on Form 10-K, and should be read in conjunction with such
financial information.




As Of And For The Year Ended December
      31,2009
                    
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005(Dollars
      in thousands, except share and per share amounts)Income
      Statement:Revenues
                    
                    $
                    64,494
                    
                    
                    $
                    93,027
                    
                    
                    $
                    77,266
                    
                    
                    $
                    77,128
                    
                    
                    $
                    53,378Costs
      of revenues
                    
                    
                    57,484
                    
                    
                    
                    80,910
                    
                    
                    
                    66,771
                    
                    
                    
                    67,155
                    
                    
                    
                    46,897Gross
      profit
                    
                    
                    7,010
                    
                    
                    
                    12,117
                    
                    
                    
                    10,495
                    
                    
                    
                    9,973
                    
                    
                    
                    6,481Selling,
      general and administrative expenses
                    
                    
                    4,964
                    
                    
                    
                    5,283
                    
                    
                    
                    4,427
                    
                    
                    
                    4,511
                    
                    
                    
                    3,657Operating
      income
                    
                    
                    2,046
                    
                    
                    
                    6,834
                    
                    
                    
                    6,068
                    
                    
                    
                    5,462
                    
                    
                    
                    2,824Other
      income
                    
                    
                    34
                    
                    
                    
                    370
                    
                    
                    
                    682
                    
                    
                    
                    361
                    
                    
                    
                    39Income
      before provision for income taxes
                    
                    
                    2,080
                    
                    
                    
                    7,204
                    
                    
                    
                    6,750
                    
                    
                    
                    5,823
                    
                    
                    
                    2,863Provision
      for income taxes
                    
                    
                    810
                    
                    
                    
                    2,965
                    
                    
                    
                    3,088
                    
                    
                    
                    2,715
                    
                    
                    
                    152
                    (a)Net
      income
                    
                    
                    1,270
                    
                    
                    
                    4,239
                    
                    
                    
                    3,662
                    
                    
                    
                    3,108
                    
                    
                    
                    2,711Net
      income per share –Basic
                    
                    
                    .20
                    
                    
                    
                    .68
                    
                    
                    
                    .59
                    
                    
                    
                    .52
                    
                    
                    
                    .47Diluted
                    
                    
                    .20
                    
                    
                    
                    .67
                    
                    
                    
                    .59
                    
                    
                    
                    .51
                    
                    
                    
                    .47Number
      of shares used in earnings per share computation :Basic
                    
                    
                    6,240,256
                    
                    
                    
                    6,278,555
                    
                    
                    
                    6,162,034
                    
                    
                    
                    5,950,445
                    
                    
                    
                    5,743,827Diluted
                    
                    
                    6,283,540
                    
                    
                    
                    6,334,329
                    
                    
                    
                    6,242,607
                    
                    
                    
                    6,077,127
                    
                    
                    
                    5,743,827Dividends
      per share
                    
                    
                    .10
                    
                    
                    
                    .20
                    
                    
                    
                    -
                    
                    
                    
                    .06
                    
                    
                    
                    -Balance
      Sheet Data:Total
      assets
                    
                    $
                    40,537
                    
                    
                    $
                    50,499
                    
                    
                    $
                    40,937
                    
                    
                    $
                    35,545
                    
                    
                    $
                    22,710Working
      capital
                    
                    
                    19,087
                    
                    
                    
                    18,331
                    
                    
                    
                    16,822
                    
                    
                    
                    12,361
                    
                    
                    
                    8,056Current
      liabilities
                    
                    
                    18,632
                    
                    
                    
                    29,251
                    
                    
                    
                    23,548
                    
                    
                    
                    22,422
                    
                    
                    
                    13,192Long-term
      liabilities
                    
                    
                    1,054
                    
                    
                    
                    1,118
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Stockholders’
      equity
                    
                    
                    20,851
                    
                    
                    
                    20,130
                    
                    
                    
                    17,389
                    
                    
                    
                    13,123
                    
                    
                    
                    9,518Other
      Data:Current
      ratio
                    
                    2.02:1
                    
                    
                    1.63:1
                    
                    
                    1.71:1
                    
                    
                    1.55:1
                    
                    
                    1.61:1


12
 Table of
Contents





(a)
During the year ended December 31, 2005, the outstanding deferred tax valuation
allowance was reversed, after the Company’s management re-evaluated the
likelihood that these assets would be realized in their entirety, and concluded
the valuation allowance was not required.





ITEM
7.         MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




The
following discussion and analysis explains the general financial condition and
the results of operations for the Company for the years ended December 31, 2009,
2008 and 2007 including:





• factors
that affect its business;


• its
earnings and costs in the periods presented;


• changes
in earnings and costs between periods;


• sources of earnings; and


• impacts of these factors on its
overall financial condition.





As you
read this discussion and analysis, please refer to the Company’s consolidated
financial statements and the notes thereto for the years ended 2009, 2008 and
2007 included in this report.





Overview





The Company, through its wholly-owned
subsidiary, furnishes and installs HVAC systems and process piping systems for
institutional, industrial, commercial, high-rise residential and public works
projects.  The Company does not actively pursue projects under
$3,000,000. Some larger company projects involve multi-year contracts, which can
account for more than 10% of the Company’s revenue in any given
year.  The Company also serves as a mechanical trade manager,
performing project management services relating to the mechanical
trades.





The
Company obtains projects through both competitive and negotiated bidding
processes submitted to public entities, project owners or construction managers,
many with whom the Company has long standing commercial
relationships.





On
private projects, the Company is awarded many of its contracts by providing
value engineering assistance, whereby the Company recommends changes to project
plans, subject to the approval of the design professional.  This
assistance reduces costs and yields the same results as the original
designs.  As a result, during 2008 and 2007, the Company obtained most
of its contracts without being required to participate in a competitive bidding
process.  Due to the current credit crisis and economic recession, the
Company has resumed bidding on public contracts, some of which incorporate value
engineering provisions.





13
 Table of Contents





The
Company’s profitability is dependent on its ability to competitively bid on
projects in the public sector, continue to maintain its commercial relationships
and provide quality services necessary to obtain projects.  The
Company’s costs of revenues include field labor, equipment, material,
subcontractor and overhead costs.  Overhead costs include project
supervision and drafting salaries, as well as insurance costs.  The
Company must control costs of revenues by having the ability to manage material
costs, purchase equipment at or below original estimated amounts and control
labor costs throughout the duration of each project.





For the
year ended December 31, 2009, the Company’s earnings were a result of decreased
revenues, decreased gross profit earned from projects, decreased selling,
general and administrative expenses and a reduction in other
income.





The
Company’s revenues for 2009 decreased 30.7%, as compared to revenue in 2008, as
a result of the economic recession and credit crisis which led to the
cancellation of several projects in December 2008 and January 2009.





The
economic recession has impacted the number of available private sector projects
which the Company may pursue.  Therefore, the Company is aggressively
pursuing opportunities in the public sector, where the Company has been
successful in the past.  During the third quarter of 2009, the Company
received awards of contracts for chiller plants at the new World Trade Center
(awarded to the Company’s Joint Venture) and at the Brookhaven National
Laboratory.





The gross
profit for 2009 was lower than 2008 as a result of the lower revenues, as well
as higher than anticipated costs incurred on several projects.  The
Company has submitted claims on some of these projects to recoup some of these
unanticipated costs.  In accordance with the accounting principles
generally accepted in the United States of America for the construction
industry, the Company does not record any income from claims until the claims
have been received or awarded.  While there is no assurance that these
costs will be reimbursed, the Company believes its claims are
meritorious.





The
Company’s selling general and administrative expenses decreased as a result of
reductions primarily in employment costs as well as reductions in auto expenses
and professional fees.





The
Company’s other income was lower in 2009, as compared to 2008, as a result of a
reduction in the interest rates that investments were able to earn, and an
increase in interest expense related to a mortgage on the Company’s Bronx, New
York facility which was purchased in December 2008.





The
majority of the Company’s contracts are awarded on a fixed-price
basis.  Subcontractor and equipment purchases are awarded on a
fixed-price basis, near the time the Company’s contract is
awarded.  The Company purchases most materials throughout the project
on a price in effect basis. The Company includes allowances in its estimates for
future escalations in steel prices.  The Company had an agreement with
a supplier of piping materials, whereby the Company was committed to purchase
certain piping products normally used in its operations at set prices through
October 2008.  Based on the current pricing of piping material, the
Company has determined that it was not necessary to renew this
agreement.





14
 Table of Contents





For the
year ended December 31, 2008, the Company’s earnings were the result of
increased revenues, increased gross profit earned from projects, increased
selling, general and administrative expenses and a reduction in other
income.





The
Company’s revenue for 2008 increased 20.4%, as compared to revenue in 2007, as a
result of the Company’s performance on its December 31, 2007 backlog, as well as
contracts received during 2008.  During 2008, the start dates of two
of the Company’s jobs were postponed.  The postponement of these
projects also affected the amount of revenue and gross profit the Company could
have earned in 2008.





The gross
profit for 2008 was higher than 2007 as a result of the increased acceptance of
the Company’s value engineering services in the market place.  A
number of projects experienced general construction delays which reduced
revenues.  While the Company is typically compensated for costs
associated with delays, there is no assurance that such claims will be
successful in the future.   The effect of a delay in construction
is to postpone revenue recognition until a later period.





The
Company’s selling, general and administrative expenses increased primarily as a
result of increased employment costs, auto expenses, professional fees, costs
associated with the Company’s public filings and costs associated with the
hiring of an investor relations firm.





The
Company’s other income was lower in 2008 as compared to 2007, as a result of a
reduction in the interest rates that investments were able to earn.





For the
year ended December 31, 2007, the Company’s earnings were affected by increased
gross profit earned from projects, reduced selling, general and administrative
expenses and increased other income.





A number
of projects experienced general construction delays in the early stages of
construction, which reduced revenues in 2007.  While the Company is
typically compensated for costs associated with these delays, the effect is to
postpone revenue recognition until a later period.





The
Company’s selling, general and administrative expenses were reduced as a result
of the allocation of overhead costs to trade management contracts.





The
Company’s other income was higher as a result of interest income earned on a
higher cash position and realized gains on the sales of marketable
securities.





Management
believes that the future success of the Company lies in its ability to obtain
new projects, maintain proper cost controls related to this work, pursue new
trade management contracts and continue controlling office expenditures. The
Company is dependant on outside factors such as the general health of the New
York City metropolitan area economy, lending institutions willingness to make
loans, and continued low interest rates, all of which contribute to the strength
of the building industry and the type of projects the Company has the ability to
obtain.  Even though there are increasing governmental deficits, the
Government’s stimulus package could also affect the amount of new governmental
financed projects which the





15
 Table of Contents





Company
could pursue. The Company must also continue to obtain surety bonds, when
required on projects. The Company’s management has experience in expanding into
new geographic areas; however, to date the Company has conducted its operations
primarily in the New York metropolitan area.





Results
of Operations





The
following table sets forth the amounts and the percentage of total revenues of
certain items of the Company’s consolidated statements of operations for the
periods indicated (dollar amounts in thousands):





2009
                  
                  
                  2008
                  
                  
                  2007Amount
                  
                  
                  Percent
                  
                  
                  Amount
                  
                  
                  Percent
                  
                  
                  Amount
                  
                  
                  PercentRevenues
                  
                  $
                  64,494
                  
                  
                  
                  100.0
                  
                  
                  $
                  93,027
                  
                  
                  
                  100.0
                  
                  
                  $
                  77,266
                  
                  
                  
                  100.0Costs of
      revenues
                  
                  
                  57,484
                  
                  
                  
                  89.1
                  
                  
                  
                  80,910
                  
                  
                  
                  87.0
                  
                  
                  
                  66,771
                  
                  
                  
                  86.4Gross
      profit
                  
                  
                  7,010
                  
                  
                  
                  10.9
                  
                  
                  
                  12,117
                  
                  
                  
                  13.0
                  
                  
                  
                  10,495
                  
                  
                  
                  13.6Selling,
      general and administrative expenses
                  
                  
                  4,964
                  
                  
                  
                  7.7
                  
                  
                  
                  5,283
                  
                  
                  
                  5.7
                  
                  
                  
                  4,427
                  
                  
                  
                  5.7Operating income
                  
                  
                  2,046
                  
                  
                  
                  3.2
                  
                  
                  
                  6,834
                  
                  
                  
                  7.3
                  
                  
                  
                  6,068
                  
                  
                  
                  7.9Other
    income
                  
                  
                  34
                  
                  
                  
                  .0
                  
                  
                  
                  370
                  
                  
                  
                  .4
                  
                  
                  
                  682
                  
                  
                  
                  .8Income
      before provision for income taxes
                  
                  
                  2,080
                  
                  
                  
                  3.2
                  
                  
                  
                  7,204
                  
                  
                  
                  7.7
                  
                  
                  
                  6,750
                  
                  
                  
                  8.7Provision
      for income taxes
                  
                  
                  810
                  
                  
                  
                  1.2
                  
                  
                  
                  2,965
                  
                  
                  
                  3.2
                  
                  
                  
                  3,088
                  
                  
                  
                  4.0Net
    income
                  
                  $
                  1,270
                  
                  
                  
                  2.0
                  
                  
                  $
                  4,239
                  
                  
                  
                  4.5
                  
                  
                  $
                  3,662
                  
                  
                  
                  4.7





Year
Ended December 31, 2009 compared to Year Ended December 31, 2008




Revenues




Revenues decreased by $28,533,000 or
(30.7)%, to $64,494,000 for the year ended December 31, 2009, as compared to
$93,027,000 for the year ended December 31, 2008.  Revenues for the
fourth quarter of 2009 were $14,986,000, a decrease of $10,025,000 or (40.1)%,
as compared to $25,011,000 in the fourth quarter of 2008.




This decrease was a result of the
economic recession and credit crisis which led to the cancellation of several
projects in December 2008 and January 2009.




At December 31, 2009, the Company had
backlog of approximately $121,500,000.




Approximately $55,000,000 of the
December 31, 2009 backlog is not reasonably expected to be completed in the next
fiscal year.  New contracts secured by the Company during 2010 will
also increase 2010 revenues.  The amounts of backlog not reasonably
expected to be completed in the next fiscal year is subject to various
uncertainties and risks.  The Company is actively seeking new projects
to add to its backlog.




The economic recession has impacted the
number of private projects, which the Company may pursue.  Therefore,
the Company is aggressively pursuing opportunities in the public sector, where
the Company has been successful in the past.  During the 2009 third
quarter, the Company received awards for chiller plants at the new World Trade
Center and Brookhaven National Laboratory.




During the year ended December 31,
2009, the Company had 23%, 17%, and 12%, 12% and 11% of revenues, respectively,
from its five largest customers.  The Company bids on
large





16
 Table of Contents





multi-year
contracts, which can account for more than 10% of its contract revenue in any
given year.





Costs of
Revenues




Costs of revenues decreased by
$23,426,000 or (29.0)%, to $57,484,000 for the year ended December 31, 2009, as
compared to $80,910,000 for the year ended December 31, 2008.  Costs
of revenues for the fourth quarter of 2009 were $13,095,000, a decrease of
$8,987,000 or (40.7)%, as compared to $22,082,000 for the fourth quarter of
2008.  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.  The decrease in cost
of revenues was primarily associated with the decrease in revenues.





Gross
Profit





For the year ended December 31, 2009,
the Company had a gross profit of $7,010,000 or 10.9% of revenues, as compared
to $12,117,000 or 13.0% of revenues for the year ended December 31,
2008.  In the fourth quarter of 2009, the gross profit was $1,891,000
or 12.6% of revenues, as compared to $2,929,000 or 11.9% of revenues for the
fourth quarter of 2008.





The overall decrease in gross profit
for 2009, as compared to 2008, was primarily a result of lower revenues, as well
as higher than anticipated costs incurred on several projects.  The
Company has submitted claims on some of these projects to recoup some of these
unanticipated costs.  In accordance with accounting principles
generally accepted in the United States of America for the construction
industry, the Company does not record any income from claims until claims have
been received or awarded.  While there are no assurances that these
costs will be reimbursed, the Company believes its claims are
meritorious.





Selling, General and
Administrative Expenses





For the
year ended December 31, 2009, selling, general and administrative (“S,G&A”)
expenses decreased by $319,000 or (6.0)%, to $4,964,000, as compared to
$5,283,000 for the year ended December 31, 2008.  In the fourth
quarter of 2009, S,G&A expenses were $920,000, a decrease of $216,000 or
(19.0)%, as compared to $1,136,000 for the fourth quarter of 2008.





For the above yearly and quarterly
periods, a portion of these changes were a result of the decreases in employment
costs, auto expenses, professional fees, and costs associated with the public
filings. Professional fees, related to the Company’s public filings with the
Securities and Exchange Commission, together with costs associated with investor
relations firm incurred during 2008, decreased approximately $94,000 during the
year ended December 31, 2009, as compared to the year ended December 31,
2008.





The remaining changes in 2009 S,G&A
expenses as compared to 2008 were primarily a result of decreases in employment
costs.





17
 Table of Contents





Other
Income





Other income for the year ended
December 31, 2009 decreased by $336,000 or (90.8)%, to $34,000, as compared to
other income of $370,000 for the year ended December 31,
2008.  Interest income for the year ended December 31, 2009 was
$102,000, as compared to $370,000 for the year ended December 31,
2008.  Interest expense for the year ended December 31, 2009 was
$68,000, as compared to $11,000 for the year ended December 31,
2008.  The increase in interest expense was primarily related to a
mortgage on the Company’s Bronx, New York facility which was purchased in
December 2008.  During the year ended December 31, 2008, the Company
realized gains on the sales of marketable securities totaling
$11,000.





Provision for Income
Taxes





The income tax expense for the year
ended December 31, 2009 was $810,000 or 38.9% of income before the provision for
income taxes, compared to $2,965,000, or 41.2% of income before the provision
for income taxes for the year ended December 31, 2008.





The provision for income taxes and the
Company’s effective tax rate were lowered in 2009 and 2008 by the Company’s
ability to utilize the Domestic Production Activities Deduction, a credit
available to qualifying entities in construction and other
industries.  During 2009, the Company received a federal income tax
refund which also reduced the provision for income taxes.





Net
income





As a result of all the items above, the
Company reported net income of $1,270,000, or $.20 per share-basic and diluted,
for the year ended December 31, 2009.





As a result of all the items above, the
Company reported net income of $4,239,000, or $.68 per share-basic and $.67 per
share diluted, for the year ended December 31, 2008.




Year
Ended December 31, 2008 compared to Year Ended December 31, 2007




Revenues




Revenues increased by $15,761,000 or
20.4%, to $93,027,000 for the year ended December 31, 2008, as compared to
$77,266,000 for the year ended December 31, 2007.  Revenues for the
fourth quarter of 2008 were $25,011,000, an increase of $6,083,000 or 32.1%, as
compared to $18,928,000 in the fourth quarter of 2007.




During 2008 and 2007, the Company had a
number of projects which experienced general construction delays in the early
stages of construction, which reduced revenue for each year.





18
 Table of Contents





At December 31, 2008, the Company had
backlog of approximately $62,500,000.  The December 31, 2008 backlog
includes the remaining contract value of three contracts, which have been
terminated for convenience by the developer, effective March 6,
2009.  The backlog at December 31, 2008 does not include contract
values totaling approximately $56,000,000 for two other projects that were
delayed by their respective owners.




During the year ended December 31,
2008, the Company had earned 27%, 16%, and 11% of revenues, respectively, from
its three largest customers.  The Company bids on large multi-year
contracts, which can account for more than 10% of its contract revenue in any
given year.





Costs of
Revenues





Costs of revenues increased by
$14,139,000 or 21.2%, to $80,910,000 for the year ended December 31, 2008, as
compared to $66,771,000 for the year ended December 31, 2007.  Costs
of revenues for the fourth quarter of 2008 were $22,082,000, an increase of
$5,506,000 or 33.2%, as compared to $16,576,000 for the fourth quarter of
2007.  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 have allowed the Company to allocate the cost of
project supervision and drafting salaries over multiple projects and more
effectively utilize its experienced field labor personnel.  In
addition, the Company took steps to reduce pricing volatility of piping
materials by entering into agreements to purchase these products at fixed
prices, which expired October 2008.  Based on the current pricing of
piping material, the Company has determined that it was not necessary to renew
this agreement.





Gross
Profit





For the year ended December 31, 2008,
the Company had a gross profit of $12,117,000 or 13.0% of revenues, as compared
to $10,495,000 or 13.6% of revenues for the year ended December 31,
2007.  In the fourth quarter of 2008, the gross profit was $2,929,000
or 11.7% of revenues, as compared to $2,352,000 or 12.4% of revenues for the
fourth quarter of 2007.  The change in dollar amount in gross profits
was primarily a result of the mix of self-performed and trade management
contracts during the periods.





Selling, General and
Administrative Expenses





For the
year ended December 31, 2008, S,G&A expenses increased by $856,000, or
19.3%, to $5,283,000, as compared to $4,427,000 for the year ended December 31,
2007.  In the fourth quarter of 2008, S,G&A expenses were
$1,136,000, an increase of $246,000, or 27.6%, as compared to $890,000 for the
fourth quarter of 2007.





For the above yearly and quarterly
periods, a portion of these changes were a result of the increases in employment
costs, auto expenses, professional fees, costs associated with the public
filings and expenses related to the hiring of an investor relations
firm.  Professional fees, related to the Company’s public filings with
the Securities and Exchange Commission, together with costs associated with
investor relations firm, increased approximately $100,000 during the year ended
December 31, 2008, as compared to the year ended December 31, 2007.





19
 Table of Contents





The remaining changes in 2008 S,G&A
expenses were primarily a result of increases in employment costs and office
expenses.  In 2007, the Company was able to allocate some of these
overhead costs to trade management contracts.





Other
Income





Other income for the year ended
December 31, 2008 decreased by $312,000 or 45.7%, to $370,000, as compared to
other income of $682,000 for the year ended December 31, 2007.  This
change in other income was primarily a result of the Company’s ability to earn
greater interest income on its cash position and gains on sales of marketable
securities in 2007.  Interest income for the year ended December 31,
2008 was $370,000, as compared to $585,000 for the year ended December 31,
2007.  Interest expense for the year ended December 31, 2008 was
$11,000, as compared to $16,000 for the year ended December 31,
2007.  During the years ended December 31, 2008 and 2007, the Company
realized gains on the sales of marketable securities totaling $11,000 and
$113,000, respectively.





Provision for Income
Taxes





The income tax expense for the year
ended December 31, 2008 was $2,965,000, or 41.2% of income before the provision
for income taxes, compared to $3,088,000, or 45.7% of income before the
provision for income taxes for the year ended December 31, 2007.





The provision for income taxes was
lowered in 2008 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 all the items above, the
Company reported net income of $4,239,000, or $.68 per share-basic and $.67 per
share-diluted, for the year ended December 31, 2008.





As a result of all the items above, the
Company reported net income of $3,662,000, or $.59 per share-basic and diluted,
for the year ended December 31, 2007.





20
 Table of Contents





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 the respective contract terms.  The Company has historically
relied primarily on internally generated funds.  The Company has not
relied on bank borrowings to finance its operations since July
2003.  The Company has a line of credit, which is subject to certain
conditions.  See discussion of Credit Facility below.




As of
December 31, 2009, the Company’s cash and cash equivalents balances totaled
$14,783,000, a decrease of $1,828,000 from the $16,611,000 reported as of
December 31, 2008.




In
addition, at December 31, 2009, the Company held marketable securities totaling
$1,559,000, a $336,000 increase from the $1,223,000 balance at December 31,
2008.




Net cash (used in) provided
by Operating Activities




Net cash used in operating activities
was $905,000 for the year ended December 31, 2009.  Net cash provided
by operating activities was $3,016,000 and $2,804,000 for the years ended
December 31, 2008 and 2007, respectively.  All periods were affected
by the funding of projects as well as the payment of corporate income taxes and
executive bonuses.




Cash used in Investing
Activities




Net cash
used in investing activities was $111,000 in 2009, $1,450,000 in 2008 and
$1,322,000 in 2007.  The Company purchased marketable securities of
$12,000, $39,000 and $1,737,000 during 2009, 2008 and 2007,
respectively.  The Company received proceeds on the sales of
marketable securities of $32,000 and $489,000 during 2008 and 2007,
respectively.  The Company purchased property and equipment totaling
$82,000, $2,630,000 and $74,000 during 2009, 2008 and 2007,
respectively.  Included in the 2008 total is the purchase price of the
Bronx building and adjacent yard, which  $1,176,000 of the purchase
price was financed.




During
the year ended December 31, 2008, the Company received proceeds of $11,000 from
the sale of property and equipment.




In
addition, during the year December 31, 2009 the Company advanced its Joint
Venture, which was awarded the contract for the chiller plant at the new World
Trade Center, $17,000.




Cash (used in) provided by
Financing Activities




Net cash
used in financing activities was $812,000 and $1,187,000 during 2009 and 2008,
respectively.  Net cash provided by financing activities was $665,000
during 2007.




During
December 2008, the Company’s Board of Directors authorized the purchase, on the
open market, of up to $1,000,000 of the Company’s common stock, through June
2009.  During 2008, the Company purchased 6,600 shares at a cost of
$16,000.





21
 Table of Contents





During
the year ended December 31, 2009, the Company purchased 46,100 shares of its
common stock at a cost of $124,000.




No
individuals exercised stock options during the year ended December 31,
2009.




During
the year ended December 31, 2008, four individuals 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 year ended December 31, 2007, eight individuals exercised options to
purchase an aggregate of 192,916 shares contributing cash proceeds of $309,000
to the Company.




The
Company presents excess tax benefits resulting from the exercise of stock in the
statement of cash flows  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 assets for such
options.  As of December 31, 2008 and 2007, $63,000 and $356,000,
respectively, of excess tax benefits have been classified as an operating cash
outflow and a financing cash inflow.




In
addition, during 2008 the Company paid $44,000 of other items.




On June
2, 2009, the Company’s Board of Directors declared a cash dividend of $.10 per
share.  The aggregate amount of this dividend was $624,000, and was
paid on July 17, 2009 to stockholders of record as of June 29,
2009.




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.




The
Company repaid principal payments on its mortgage payable totaling $64,000
during the year ended December 31, 2009.




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 is secured by the Company’s assets and is guaranteed by the Company’s
subsidiary, KSW Mechanical Services, Inc.  On January 15, 2010, the
Company’s bank extended the working capital credit facility through March 31,
2011.  There were no borrowings against this facility during 2009 and
2008.




Under the
new facility, advances bear interest, based on the Company’s option, at either
the bank’s prime lending rate (3.25% at December 31, 2009), or the London
Interbank Offered Rate (“LIBOR”) (.23% at December 31, 2009)  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





22
 Table of Contents




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.




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’s ability to obtain bonding, and the amount of
bonding available, 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, 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.




As of
December 31, 2009, approximately $50,500,000 of the Company’s backlog of
approximately $121,500,000 was bonded.  The Company provides its
surety with a detailed schedule of backlog on a quarterly basis.  The
Company believes its bonding limits are sufficient based on the Company’s
revenue, volume and size of the Company’s bonded contracts.




Critical
Accounting Policies and Estimates





The
Company’s consolidated financial statements and accompanying notes have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of consolidated financial statements
in conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting
periods.





The
Company continually evaluates the accounting policies and estimates it uses to
prepare the consolidated financial statements.  In general,
management’s estimates are based on historical experience, on information from
third party professionals and on various other assumptions that are believed to
be reasonable under the facts and circumstances.  Actual results could
differ from those estimates made by management.





The
Company believes the following accounting policies represent critical accounting
policies. Critical accounting policies are those that are most important to the
portrayal of a company’s financial condition and results and that require
management’s most difficult, subjective, or complex judgment, often as a result
of the need to make estimates about the effect of
matters that are inherently uncertain and may change in subsequent periods. A
discussion of




23
 Table of Contents






the
Company’s significant accounting policies, including those that do not require
management to make difficult, subjective, or complex judgments or estimates, in
Note 2to the
Company’s consolidated financial statements included elsewhere
herein.





Accounting for revenue
recognition for construction contracts





The
Company recognizes revenue for long-term construction contracts not yet
completed using the percentage-of-completion method, measured by the percentage
of total costs incurred to date as compared to total estimated costs at the
completion of each contract.  When the Company bids on projects, a
comprehensive budget is prepared dividing the project into line items indicating
separate labor, equipment, material, subcontractor and overhead cost
estimates.  As projects progress, the Company’s project managers plan,
schedule and oversee operations and review project costs compared to the
estimates.  Management reviews on a bi-weekly basis the progression of
the contract with the project manager.  An analysis is prepared and
reviewed monthly by management comparing the costs incurred to the budgeted
amounts.  The results of these procedures help update the anticipated
total costs at completion, based on facts and circumstances known at the
time.  Any revisions in cost and profit estimates are reflected in the
accounting period in which the facts which require the revisions become known.
These estimates are subject to revisions due to unanticipated increases in
labor, material and equipment costs as well as project scope
changes.  The Company receives change orders for project scope
changes.  For some project cost overruns, the Company can make a claim
to the project owner or general contractor to seek reimbursement of these
overruns. In the past, the Company has been successful in the pursuit of such
claims.  Such claims are not recorded on the books until they are
acknowledged by the owner or contractor.





Accounts and retainage
receivable





Judgment
is required to estimate the collectibility of accounts and retainage
receivable.  The Company has in the past established an allowance for
uncollectible trade accounts and retainage receivable based upon historical
collection experience and management’s periodic evaluation of the collectibility
of outstanding accounts and retainage receivable on an account-by-account
basis.  Accounts receivable and contract retentions are due based on
contract terms.  Amounts are deemed delinquent when they are not
received within their contract terms.  Delinquent receivables are
written-off based on individual credit evaluation and specific circumstances of
the customer.





During
the years ended December 31, 2009 and 2008, the Company did not write off any
receivables and therefore did not record an allowance for uncollectible trade
accounts and retainage receivable at December 31, 2009 and 2008.





Accounting for income
taxes





Judgment
is required in developing the Company’s provision for income taxes, including
the determination of deferred tax assets and valuation allowances that might be
required against the deferred tax assets and liabilities.  The
Company’s consolidated balance sheets at December 31, 2009 and 2008 include
deferred tax assets totaling $227,000 and $394,000, respectively.





24
 Table of Contents





Accounting for share-based
compensation





Since
January 1, 2006, the Company has accounted for share-based compensation using
the Black-Scholes option – pricing model, which requires the input of subjective
assumptions.  These assumptions include estimating the length of time
employees will retain their vested stock options before exercising them
(“expected term”), the estimated volatility of the Company’s common stock price
over the expected term and the number of options that will ultimately not
complete their vesting requirements (“forfeitures”).  Changes in the
subjective assumptions can materially affect the estimate of fair value
share–based compensation and the related amount recognized in the consolidated
statements of income.





NEW
ACCOUNTING PRONOUNCEMENTS





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.  References to GAAP issued by the FASB in these footnotes are
to the FASB Accounting
Standards Codification,sometimes referred to as the Codification or
ASC.  The FASB finalized the Codification effective for periods ending
on or after September 15, 2009.  Prior FASB standards are no longer
being issued by the FASB.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 141 (revised 2007), “Business Combinations”, which is now a
subtopic within FASB ASC 805 “Business Combinations”  FASB ASC 805-10
changes the accounting for acquisitions specifically eliminating the step
acquisition model, changing the recognition of contingent consideration from
being recognized when it is probable to being recognized at the time of
acquisition, disallowing the capitalization of transaction costs and changes
when restructurings related to acquisition can be recognized.  It is
effective for fiscal years beginning on or after December 15, 2008 and only
impacts the accounting for acquisitions that are made after
adoption.  The adoption of FASB ASC 805-10 did not have an effect on
the Company’s consolidated financial position or results of
operations.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB No. 51”, which is now a
subtopic within FASB ASC 810-10 “Consolidation”.  FASB ASC 810-10 is
effective for fiscal years beginning on or after December 15, 2008, with earlier
adoption prohibited.  FASB ASC 810-10 requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the Company’s equity.  The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the consolidated income
statement.  It also amends certain consolidation procedures for
consistency with the requirements of FASB ASC 805.  FASB ASC 810-10
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest.  The adoption of FASB ASC
810-10 did not have an effect on the Company’s consolidated financial position
or results of operations.





25
 Table of Contents





In June
2009, the FASB issued SFAS No. 166 “The Accounting for Transfers of Financial
Assets – an Amendment of FASB Statement 140”, currently included in FASB ASC
860, which clarifies circumstances under which a transferor has surrendered
control and, thus, should remove the asset together with any related liabilities
from its balance sheet.  It is effective for the Company beginning on
January 1, 2010.  Management does not expect the adoption to have a
material effect on the Company’s consolidated financial statements and related
disclosures.





In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46
(R)”, currently included in FASB ASC 810, which modifies the analysis required
to identify controlling financial interest in variable interest
entities.  It is effective for the Company beginning on January 1,
2010.  Management does not expect the adoption to have a material
effect on the Company’s consolidated financial statements and related
disclosures.




Effective April 1, 2009, the Company
adopted three accounting standard updates which were intended to provide
additional application guidance and enhanced disclosures regarding fair value
measurements and impairments of securities. The first update, as codified
in ASC 820-10-65, provides additional guidelines for estimating fair value
in accordance with fair value accounting. The second update, as codified
in ASC 320-10-65, changes accounting requirements for
other-than-temporary-impairments of debt securities by replacing the current
requirement that a holder have the positive intent and ability to hold an
impaired security to recovery in order to conclude an impairment was temporary
with a requirement that an entity conclude it does not intend to and it will not
be required to sell the impaired security before the recovery of its amortized
cost basis. The third update, as codified in ASC 825-10-65, increases the
frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after June 15, 2009. The adoption of these
accounting standard updates did not have a material impact on the Company’s
consolidated financial statements.





26
 Table of Contents




CONTRACTUAL
OBLIGATIONS




As of
December 31, 2009, outstanding contractual obligations were as
follows:




Payments Due by
Period





Contractual Obligations
                
                Total
                
                
                Less than 1 year
                
                
                1-3 years
                
                
                4-5 years
                
                
                After 5 yearsLong-
      term debt (a)
                
                $
                1,112,000
                
                
                $
                58,000
                
                
                $
                116,000
                
                
                $
                116,000
                
                
                $
                822,000Capital
      leases
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Operating
      leases (b)
                
                
                1,016,000
                
                
                
                218,000
                
                
                
                450,000
                
                
                
                348,000
                
                
                
                -Purchase
      obligations under construction contracts
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Other
      long-term obligations
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Totals
                
                $
                2,128,000
                
                
                $
                276,000
                
                
                $
                566,000
                
                
                $
                464,000
                
                
                $
                822,000




(a)
            The
      long-term debt is related to the financing of the purchase of a pipe
      fabrication shop and adjacent yard located in Bronx,
  N.Y.




(b)
            The
      Company is currently obligated to pay monthly rental payments of
      approximately $18,000 on its lease for office space in Long Island City,
      New York.  The current lease expires in June
      2014.  The Company has an option to cancel on six month
      notice.




OFF
-BALANCE SHEET ARRANGEMENTS




No
disclosures are required pursuant to Item 303 (a) (4) of Regulation
S-K.




ITEM 7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




The
Company does not utilize futures, options or other derivative instruments other
than an 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 December 31, 2009, the Company had $1,559,000 in marketable
securities.




ITEM 8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




Information
required by this item, including the consolidated financial statements and
related notes, is incorporated herein by reference to pages F-1 through F-36 of
this Annual Report on Form 10-K.




ITEM 9.
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE




No
disclosure required.





27
 Table of Contents





ITEM 9A
(T). CONTROLS
AND PROCEDURES





The
Company carried out an evaluation, under the supervision and with the
participation of management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of December 31, 2009. Based on that evaluation, its Chief Executive Officer
and Chief Financial Officer concluded that, the Company’s disclosure controls
and procedures were effective as of December 31, 2009.





MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANICAL REPORTING





The Company’s management is responsible
for establishing and maintaining adequate internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and
Exchange Act of 1934). The Company’s internal control over financial reporting
is a process designed with the participation of its Chief Executive Officer and
Chief Financial Officer to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the Company’s
financial statements for external reporting purposes in accordance with
accounting principles generally accepted in the United States of
America.





The Company’s internal control over
financial reporting includes policies and procedures that: (a) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the Company's transactions and dispositions of assets; (b) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that the Company’s receipts and
expenditures are being made only in accordance with authorizations of its
management and Board of Directors; and (c) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company’s assets that could have a material effect on the
Company’s financial statements.





Because of its inherent limitations,
the Company’s disclosure controls and procedures may not prevent or detect
misstatements.  A control system, no matter how well conceived and
operated, can only provide reasonable, not absolute, assurance that the control
system objectives are met.  Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, have been
detected.  Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.





As of December 31, 2009, the Company’s
management conducted an evaluation of the effectiveness of the Company’s
internal control over financial reporting based on the framework established in
INTERNAL CONTROL – INTEGRATED FRAMEWORK issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).  Based on this
assessment, management determined that, as of December 31, 2009, the Company’s
internal control over financial reporting was effective to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America.





28
 Table of Contents





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
December 31, 2009, that have materially affected or are reasonably likely to
materially affect the Company’s internal control over financial
reporting.





This annual report does not include an
attestation report of the Company’s independent registered public accounting
firm regarding internal control over financial reporting. Management’s report
was not subject to attestation by the Company’s independent registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.





ITEM 9B.
            OTHER
      INFORMATION





None.




PART III




ITEM 10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Other
than information with respect to the Company’s executive officers, which is set
forth after Item 4 of Part I of this Form 10-K, and information regarding the
Company’s Code of Ethics, as set forth below, the information required to be
disclosed pursuant to Item 10 is incorporated in its entirety herein by
reference to the Company’s definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A within 120 days after the end of the
Company’s last fiscal year.




CODE OF ETHICS




The
Company has adopted a written Code of Business Conduct and Ethics (the “Code of
Ethics”) that applies to its principal executive officer, principal financial
and accounting officer, directors, officers and employees.  Copies of
the Company’s Code of Ethics will be provided free of charge upon written
request directed to the Company’s Director of Investor Relations, at 37-16
23rd
Street, Long Island City, New York 11101.




ITEM 11.
            EXECUTIVE
      COMPENSATION




The
information required to be disclosed pursuant to Item 11 is incorporated in its
entirety herein by reference to the Company’s definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company’s last fiscal year.




29
 Table of Contents





ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS




The
information required to be disclosed pursuant to Item 12 is incorporated in its
entirety herein by reference to the Company’s definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company’s last fiscal year.




ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE




a.           The
information required to be disclosed pursuant to Item 13 is incorporated in its
entirety herein by reference to the Company’s definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company’s last fiscal year.




b.           Any
transaction required to be disclosed under this item must be approved by the
Board of Directors as being in the Company’s interest.




ITEM 14.
            PRINCIPAL
      ACCOUNTING FEES AND SERVICES




The
information required to be disclosed pursuant to Item 14 is incorporated in its
entirety herein by reference to the Company’s definitive proxy statement to be
filed with the Commission pursuant to Regulation 14A within 120 days after the
end of the Company’s last fiscal year.




PART IV




ITEM 15.
            EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES




(a)
Documents filed as part of this report:




1. and 2.
Financial statements and financial statement schedules.




See Index
to Consolidated Financial Statements on page F-1 of this Form 10-K.




30
 Table of Contents





3.
            Exhibits




No.
                
                Description3.1
                
                Amended
      and Restated Articles of Incorporation of KSW, Inc. (incorporated herein
      by reference to Exhibit 3.1 to the Company’s Registration Statement on
      Form S-8 (No. 333-217350), filed with the Commission on February 13,
      1997).3.2
                
                Amended
      and Restated By-Laws of KSW, Inc. (incorporated herein by reference to
      Exhibit 3.2 to the Company’s Registration Statement on Form S-8 (No.
      333-217350), filed with the Commission on February 13,
    1997).10.1
                
                Form
      of Modification of Lease Agreement dated as of May 1, 1998 by and between
      KSW, Inc, Irvjoy Partners, L.P. and I BLDG Co., Inc. (incorporated herein
      by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K
      for the fiscal year ended December 31, 1998 (Commission File No.
      001-32865), filed with the Commission on March 30,
  1999).10.2
                
                1995
      Stock Option Plan of KSW, Inc. (incorporated herein by reference to
      Exhibit 10.3 to the Company’s Registration Statement on Form 10
      (Commission File No. 001-32865), filed with the Commission on November 24,
      1995).10.3
                
                Employment
      Agreement, dated September 12, 2005 by and between the Company, KSW
      Mechanical Services, Inc. and Floyd Warkol (incorporated herein by
      reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K
      (Commission File No. 001-32865), filed with the Commission on September
      12, 2005).10.4
                
                Amendatory
      Employment Agreement, dated as of March 6, 2007, by and between the
      Company, KSW Mechanical Services, Inc., and Floyd Warkol (incorporated
      herein by reference to Exhibit 10.4 to the Company’s Annual Report on Form
      10-K for the year ended December 31, 2006, filed with the Commission on
      March 14, 2007).10.5
                
                Line
      of Credit Agreement Letter, dated March 14, 2006, between KSW, Inc. and
      Bank of America, N.A. together with forms of a Line of Credit Note, Rider
      to Line of Credit Note, a pledge security agreement and guaranty
      (incorporated herein by reference to Exhibit 10.21 to the Company’s Annual
      Report on Form 10-K for the year ended December 31, 2005, filed with the
      Commission on March 16, 2006).10.6
                
                Line
      of Credit Agreement Letter, dated March 8, 2007, between KSW, Inc. and
      Bank of America, N.A. (incorporated herein by reference to Exhibit 10.6 to
      the Company’s Annual Report on Form 10-K for the year ended December 31,
      2006, filed with the Commission on March 14,
  2007).





31
 Table of Contents





10.7
              
              Line
      of Credit Agreement Letter, dated January 28, 2008, between KSW, Inc. and
      Bank of America, N.A. (incorporated
      herein by reference to Exhibit 10.7 to the Company's Annual Report on Form
      10-K for the year ended December 31, 2008, filed with the Commission on
      March 25, 2009).10.8
              
              Line
      of Credit Agreement Letter, dated January 26, 2009, between KSW, Inc. and
      Bank of America, N.A. (incorporated
      herein by reference to Exhibit 10.8 to the Company's Annual Report on Form
      10-K for the year ended December 31, 2008, filed with the Commission on
      March 25, 2009).10.9
              
              KSW,
      Inc. 2007 Stock Option Plan (incorporated herein by reference to Appendix
      E to the Company’s definitive proxy statement on Schedule 14A for the 2008
      annual meeting of stockholders, filed with the Commission on April 4,
      2008).10.10
              
              Line
      of Credit Agreement Amendment No. 1, dated January 15, 2010 between KSW,
      Inc. and Bank of America, N.A.11.1
              
              Statement
      Regarding Computation of Net Earnings Per Share.21.1
              
              Subsidiaries
      of Registrant23.1
              
              Consent
      of BDO Seidman, LLP23.2
              
              Consent
      of J.H. Cohn LLP31.1
              
              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.
      Section 1350.32.2
              
              Certification
      of Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C.
      Section 1350.





32
 Table of Contents





SIGNATURES





Pursuant
to the requirements of Section 13 of 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




KSW,
      INC.By:
                  /s/ Floyd WarkolFloyd
      WarkolPresident,
      Chief Executive Officer,Secretary
      and Chairman of the Board ofDirectors
      (Principal Executive Officer)March
      19, 2010




Pursuant to the requirements of the
Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




/s/ Floyd WarkolFloyd
      WarkolPresident,
      Chief Executive Officer,Secretary
      and Chairman of the Board ofDirectors
      (Principal Executive Officer)March
      19, 2010/s/ Stanley KreitmanStanley
      KreitmanDirectorMarch
      19, 2010/s/ Edward T. LaGrassaEdward
      T. LaGrassaDirectorMarch
      19, 2010/s/ Warren O. KoganWarren
      O. KoganDirectorMarch
      19, 2010/s/ John A. CavanaghJohn
      A. CavanaghDirectorMarch
      19, 2010/s/ Richard W. LucasRichard
      W. LucasChief
      Financial Officer(Principal
      Financial Officer andPrincipal
      Accounting Officer)March
      19, 2010




33
 Table of Contents





INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS





PageReports of Independent Registered Public Accounting
      Firms
                  F-2-3Consolidated
      Financial Statements:Consolidated Balance Sheets
                  F-4-5Consolidated Statements of Income
                  F-6Consolidated Statements of Comprehensive
      Income
                  F-7Consolidated Statements of Stockholders’
      Equity
                  F-8-9Consolidated Statements of Cash Flows
                  F-10-11Notes to Consolidated Financial
    Statements
                  F-12-36





F-1
 Table of Contents




REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




Board of
Directors and Stockholders


KSW, Inc.
and Subsidiary


Long
Island City, New York




We have
audited the accompanying consolidated balance sheet of KSW, Inc. and Subsidiary
as of December 31, 2009 and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for the year ended
December 31, 2009.  These financial statements are the responsibility
of the Company’s management.  Our responsibility is to express an
opinion on these financial statements based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audit provides a reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of KSW, Inc. and Subsidiary at
December 31, 2009, and the results of their operations and their cash flows for
the year ended December 31, 2009, in conformity with
accounting principles generally accepted in the United States of
America.




/s/BDO Seidman, LLPNew
      York, New YorkMarch
      19, 2010




F-2
 Table of Contents




REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM




To the
Board of Directors and


Stockholders
of KSW, Inc. and Subsidiary




We have
audited the accompanying consolidated balance sheet of KSW, Inc. and Subsidiary
as of December 31, 2008, and the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for the years ended
December 31, 2008 and 2007. These consolidated financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of KSW, Inc. and
Subsidiary as of December 31, 2008, and the results of its operations and its
cash flows for the years ended December 31, 2008 and 2007 in conformity with
accounting principles generally accepted in the United States of
America.




/s/
      J.H. Cohn, LLPWhite
      Plains, New YorkMarch
      23, 2009





F-3
 Table of Contents





KSW, INC. AND SUBSIDIARY




CONSOLIDATED
BALANCE SHEETS




DECEMBER
31, 2009 AND 2008


(in
thousands, except share data)







2009
              
              
              2008ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              14,783
              
              
              $
              16,611Marketable
      securities
              
              
              1,559
              
              
              
              1,223Accounts
      receivable
              
              
              12,338
              
              
              
              19,448Retainage
      receivable
              
              
              6,637
              
              
              
              9,097Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
              
              
              1,979
              
              
              
              229Prepaid
      income taxes
              
              
              -
              
              
              
              326Prepaid
      expenses and other receivables
              
              
              265
              
              
              
              349Advances
      to joint venture
              
              
              17
              
              
              
              -Deferred
      income taxes
              
              
              141
              
              
              
              299Total
      current assets
              
              
              37,719
              
              
              
              47,582Property
      and equipment, net
              
              
              2,692
              
              
              
              2,778Deferred
      income taxes
              
              
              86
              
              
              
              95Other
              
              
              40
              
              
              
              44Total
      assets
              
              $
              40,537
              
              
              $
              50,499





F-4
 Table of Contents






KSW,
INC. AND SUBSIDIARY




CONSOLIDATED
BALANCE SHEETS




DECEMBER
31, 2009 AND 2008


(in
thousands, except share data)









2009
              
              
              2008LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      liabilities:Current
      portion of mortgage payable
              
              $
              58
              
              
              $
              58Accounts
      payable
              
              
              12,005
              
              
              
              14,442Retainage
      payable
              
              
              3,608
              
              
              
              4,982Accrued
      payroll and benefits
              
              
              835
              
              
              
              1,654Accrued
      expenses
              
              
              220
              
              
              
              165Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
              
              
              1,767
              
              
              
              7,950Income
      taxes payable
              
              
              139
              
              
              
              -Total
      current liabilities
              
              
              18,632
              
              
              
              29,251Mortgage
      payable, net of current portion
              
              
              1,054
              
              
              
              1,118Total
      liabilities
              
              
              19,686
              
              
              
              30,369Commitments
      and contingencies (Note 13)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, 6,287,825
      issued, 6,235,125 and 6,281,225 shares outstanding at 2009 and 2008,
      respectively
              
              
              63
              
              
              
              63Additional
      paid-in capital
              
              
              13,313
              
              
              
              13,293Retained
      earnings
              
              
              7,788
              
              
              
              7,142Accumulated
      other comprehensive loss:Net
      unrealized holding losses on available-for-sale securities
              
              
              (173
              )
              
              
              (352
              )Less  treasury
      stock at cost, 52,700 shares at 2009, 6,600 shares at 2008
              
              
              (140
              )
              
              
              (16
              )Total
      stockholders’ equity
              
              
              20,851
              
              
              
              20,130Total
      liabilities and stockholders’ equity
              
              $
              40,537
              
              
              $
              50,499




See notes
to consolidated financial statements.






F-5
 Table of Contents





KSW, INC. AND SUBSIDIARY




CONSOLIDATED
STATEMENTS OF INCOME




YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share and per share data)







2009
              
              
              2008
              
              
              2007Revenues
              
              $
              64,494
              
              
              $
              93,027
              
              
              $
              77,266Costs
      of revenues
              
              
              57,484
              
              
              
              80,910
              
              
              
              66,771Gross
      profit
              
              
              7,010
              
              
              
              12,117
              
              
              
              10,495Selling,
      general and administrative expenses
              
              
              4,964
              
              
              
              5,283
              
              
              
              4,427Operating
      income
              
              
              2,046
              
              
              
              6,834
              
              
              
              6,068Other
      income :Interest
      income
              
              
              102
              
              
              
              370
              
              
              
              585Interest
      expense
              
              
              (68
              )
              
              
              (11
              )
              
              
              (16
              )Gain
      on sale of marketable securities
              
              
              -
              
              
              
              11
              
              
              
              113Total
      other income
              
              
              34
              
              
              
              370
              
              
              
              682Income
      before provision for income taxes
              
              
              2,080
              
              
              
              7,204
              
              
              
              6,750Provision
      for income taxes
              
              
              810
              
              
              
              2,965
              
              
              
              3,088Net
      income
              
              $
              1,270
              
              
              $
              4,239
              
              
              $
              3,662Basic
      earnings per common share
              
              $
              .20
              
              
              $
              .68
              
              
              $
              .59Diluted
      earnings per common share
              
              $
              .20
              
              
              $
              .67
              
              
              $
              .59Weighted
      average common shares outstanding –Basic
              
              
              6,240,256
              
              
              
              6,278,555
              
              
              
              6,162,034Diluted
              
              
              6,283,540
              
              
              
              6,334,329
              
              
              
              6,242,607Cash
      dividend declared and paid per share
              
              $
              .10
              
              
              $
              .20
              
              
              $
              -




See notes
to consolidated financial statements.





F-6
 Table of Contents





KSW, INC. AND SUBSIDIARY




CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME




YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands)







2009
              
              
              2008
              
              
              2007Net
      income
              
              $
              1,270
              
              
              $
              4,239
              
              
              $
              3,662Other
      comprehensive income (loss) before tax:Net
      unrealized holding gains (losses) arising during the year
              
              
              324
              
              
              
              (676
              )
              
              
              (19
              )Less:
      reclassification adjustment for gains included in net
    income
              
              
              -
              
              
              
              (11
              )
              
              
              (113
              )Other
      comprehensive income (loss) before income tax expense
      (benefit)
              
              
              324
              
              
              
              (687
              )
              
              
              (132
              )Income
      tax expense (benefit) related to items of other comprehensive income
      (loss)
              
              
              145
              
              
              
              308
              
              
              
              (61
              )Other
      comprehensive income (loss), net of  income tax expense
      (benefit)
              
              
              179
              
              
              
              (379
              )
              
              
              (71
              )Total
      comprehensive income
              
              $
              1,449
              
              
              $
              3,860
              
              
              $
              3,591





See notes
to consolidated financial statements.





F-7
 Table of Contents





KSW, INC. AND SUBSIDIARY




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY




YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)







Common Stock
                      
                      
                      Additional
                        Paid-In
                      
                      
                      Retained
                      
                      
                      Accumulated
                        Other
                        Comprehensive
                      
                      
                      TreasuryShares
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Earnings
                      
                      
                      Income(Loss)
                      
                      
                      Stock
                      
                      
                      TotalBalances,
      January 1, 2007
                      
                      
                      5,758,143
                      
                      
                      $
                      58
                      
                      
                      $
                      10,547
                      
                      
                      $
                      2,420
                      
                      
                      $
                      98
                      
                      
                      $
                      -
                      
                      
                      $
                      13,123Net
      income
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,662
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      3,662Share
      transactions under employee stock option plan
                      
                      
                      192,916
                      
                      
                      
                      1
                      
                      
                      
                      308
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      309Amortization
      of  share-based compensation
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      10Stock
      dividend
                      
                      
                      293,265
                      
                      
                      
                      3
                      
                      
                      
                      1,918
                      
                      
                      
                      (1,921
                      )
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Tax
      benefits from exercise of employee  stock option
      plan
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      356
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      356Net
      unrealized losses on available for sale securities
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (71
                      )
                      
                      
                      -
                      
                      
                      
                      (71
                      )Balances,
      December 31, 2007
                      
                      
                      6,244,324
                      
                      
                      $
                      62
                      
                      
                      $
                      13,139
                      
                      
                      $
                      4,161
                      
                      
                      $
                      27
                      
                      
                      $
                      -
                      
                      
                      $
                      17,389








F-8
 Table of Contents





KSW,
INC. AND SUBSIDIARY




CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY


(CONCLUDED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)







Common Stock
                        
                        
                        Additional
                          Paid-In
                        
                        
                        Retained
                        
                        
                        Accumulated
                          Other
                          Comprehensive
                        
                        
                        TreasuryShares
                        
                        
                        Amount
                        
                        
                        Capital
                        
                        
                        Earnings
                        
                        
                        Income(Loss)
                        
                        
                        Stock
                        
                        
                        TotalBalances,
      December 31, 2007
                        
                        
                        6,244,324
                        
                        
                        $
                        62
                        
                        
                        $
                        13,139
                        
                        
                        $
                        4,161
                        
                        
                        $
                        27
                        
                        
                        $
                        -
                        
                        
                        $
                        17,389Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,239
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        4,239Share
      transactions under employee stock option plans
                        
                        
                        43,501
                        
                        
                        
                        1
                        
                        
                        
                        67
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        68Cash
      dividend paid - $.20 per share
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,258
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,258
                        )Tax
      benefits from exercise of employee stock option plan
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        63
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        63Amortization
      of share-based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        24
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        24Purchase
      of treasury stock
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (16
                        )
                        
                        
                        (16
                        )Net
      unrealized losses on available-for- sale securities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (379
                        )
                        
                        
                        -
                        
                        
                        
                        (379
                        )Balances,
      December 31, 2008
                        
                        
                        6,287,825
                        
                        
                        
                        63
                        
                        
                        
                        13,293
                        
                        
                        
                        7,142
                        
                        
                        
                        (352
                        )
                        
                        
                        (16
                        )
                        
                        
                        20,130Net
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,270
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,270Cash
      dividend paid - $.10 per share
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (624
                        )
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (624
                        )Amortization
      of share-based compensation
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        20
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        20Purchase
      of treasury stock
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (124
                        )
                        
                        
                        (124
                        )Net
      unrealized gains on available-for- sale securities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        179
                        
                        
                        
                        -
                        
                        
                        
                        179Balances,
      December 31, 2009
                        
                        
                        6,287,825
                        
                        
                        $
                        63
                        
                        
                        $
                        13,313
                        
                        
                        $
                        7,788
                        
                        
                        $
                        (173
                        )
                        
                        $
                        (140
                        )
                        
                        $
                        20,851




See notes
to consolidated financial statements.





F-9
 Table of Contents





KSW, INC. AND SUBSIDIARY




CONSOLIDATED
STATEMENTS OF CASH FLOWS




YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands)







2009
              
              
              2008
              
              
              2007Cash
      flows from operating activities:Net
      income
              
              $
              1,270
              
              
              $
              4,239
              
              
              $
              3,662Adjustments
      to reconcile net income to net cash (used in) provided by operating
      activities:Depreciation
      and amortization
              
              
              172
              
              
              
              98
              
              
              
              76Deferred
      income taxes
              
              
              22
              
              
              
              226
              
              
              
              254Tax
      benefits from exercise of stock options
              
              
              -
              
              
              
              (63
              )
              
              
              (356
              )Realized
      gains on sale of marketable securities
              
              
              -
              
              
              
              (11
              )
              
              
              (113
              )Gain
      on sale of property and equipment
              
              
              -
              
              
              
              (3
              )
              
              
              -Share-based
      compensation expense related to stock option plan
              
              
              20
              
              
              
              24
              
              
              
              10Changes
      in operating assets (increase) decrease:Accounts
      receivable
              
              
              7,110
              
              
              
              (5,315
              )
              
              
              (928
              )Retainage
      receivable
              
              
              2,460
              
              
              
              (2,450
              )
              
              
              (1,081
              )Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
              
              
              (1,750
              )
              
              
              878
              
              
              
              (90
              )Prepaid
      expenses and other receivables
              
              
              84
              
              
              
              10
              
              
              
              (112
              )Prepaid
      income taxes
              
              
              -
              
              
              
              (263
              )
              
              
              -Other
              
              
              -
              
              
              
              1
              
              
              
              -Changes
      in operating liabilities increase (decrease):Accounts
      payable
              
              
              (2,437
              )
              
              
              260
              
              
              
              2,222Retainage
      payable
              
              
              (1,374
              )
              
              
              1,346
              
              
              
              838Accrued
      payroll and benefits
              
              
              (819
              )
              
              
              135
              
              
              
              587Accrued
      expenses
              
              
              55
              
              
              
              (10
              )
              
              
              (121
              )Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
              
              
              (6,183
              )
              
              
              3,919
              
              
              
              (956
              )Income
      taxes payable
              
              
              465
              
              
              
              (5
              )
              
              
              (1,088
              )Net
      cash (used in) by operating activities
              
              $
              (905
              )
              
              $
              3,016
              
              
              $
              2,804




(continued)





F-10
 Table of Contents





KSW,
INC. AND SUBSIDIARY




CONSOLIDATED
STATEMENTS OF CASH FLOWS


(CONCLUDED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands)







2009
                
                
                2008
                
                
                2007Cash
      flows from investing activities:Proceeds
      received on sale of marketable securities
                
                $
                -
                
                
                $
                32
                
                
                $
                489Proceeds
      received on sale of property and equipment
                
                
                -
                
                
                
                11
                
                
                
                -Purchases
      of marketable securities
                
                
                (12
                )
                
                
                (39
                )
                
                
                (1,737
                )Purchases
      of property and equipment
                
                
                (82
                )
                
                
                (1,454
                )
                
                
                (74
                )Advances
      to joint venture
                
                
                (17
                )
                
                
                -
                
                
                
                -Net
      cash used in investing activities
                
                
                (111
                )
                
                
                (1,450
                )
                
                
                (1,322
                )Cash
      flows from financing activities:Proceeds
      from the exercise of employee stock option plan
                
                
                -
                
                
                
                68
                
                
                
                309Tax
      benefits from exercise of stock options
                
                
                -
                
                
                
                63
                
                
                
                356Purchase
      of treasury stock
                
                
                (124
                )
                
                
                (16
                )
                
                
                -Repayment
      of long-term debt
                
                
                (64
                )
                
                
                -
                
                
                
                -Other
                
                
                -
                
                
                
                (44
                )
                
                
                -Cash
      dividends paid
                
                
                (624
                )
                
                
                (1,258
                )
                
                
                -Net
      cash (used in) provided by financing activities
                
                
                (812
                )
                
                
                (1,187
                )
                
                
                665Net
      (decrease) increase in cash and cash equivalents
                
                
                (1,828
                )
                
                
                379
                
                
                
                2,147Cash
      and cash equivalents, beginning of year
                
                
                16,611
                
                
                
                16,232
                
                
                
                14,085Cash
      and cash equivalents, end of year
                
                $
                14,783
                
                
                $
                16,611
                
                
                $
                16,232Supplemental
      disclosure of cash flow information:Cash
      paid during the year for:Interest
                
                $
                68
                
                
                $
                11
                
                
                $
                16Income
      taxes
                
                $
                390
                
                
                $
                3,045
                
                
                $
                3,922




Schedule
of non cash investing and financing activities:




In 2008,
the Company financed $1,176 to purchase property and equipment.




In 2007,
the Company’s Board of Directors declared and issued a stock dividend of 293,265
common shares resulting in a transfer from retained earnings to additional paid
in capital and common stock.




See notes
to consolidated financial statements.





F-11
 Table of Contents





KSW, INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)







(1)
            Principles
      of consolidation and nature of
operations




The
accompanying consolidated financial statements as of December 31, 2009 and 2008,
and for the years ended December 31, 2009, 2008 and 2007 include the accounts of
KSW, Inc. and its wholly-owned subsidiary, KSW Mechanical Services, Inc.,
collectively “the Company”, and have been prepared in conformity with accounting
principles generally acceptable in the United States of America.  All
material intercompany accounts and transactions have been eliminated in
consolidation.




The
Company furnishes and installs heating, ventilating and air conditioning systems
and processes piping systems for institutional, industrial, commercial,
high-rise residential and public works projects, primarily in the State of New
York.  The Company also serves as a mechanical trade manager,
performing project management services relating to the mechanical trades, and as
a constructability consultant.  The Company considers itself to be one
operating segment.




(2)
            Summary
      of significant accounting policies




(A)
            Revenue
      and cost recognition




Revenue
is primarily recognized on the percentage-of-completion method for long-term
construction contracts not yet completed, measured by the percentage of total
costs incurred to date to estimated total costs at completion for each
contract.  This method is utilized because management considers the
cost-to-cost method the best method available to measure progress on these
contracts.  Revenues and estimated total costs at completion are
adjusted monthly as additional information becomes available and based upon the
Company’s internal tracking systems.  Because of the inherent
uncertainties in estimating revenue and costs, it is reasonably possible that
the estimates used will change within the near term.




Contract
costs include all direct material and labor costs and those other indirect costs
related to contract performance including, but not limited to, indirect labor,
subcontract costs and supplies.  General and administrative costs are
charged to expense as incurred.




The
Company has contracts that may extend over more than one year; therefore,
revisions in cost and profit estimates during the course of the work are
reflected in the accounting period in which the facts, which require the
revisions, become known.




Provisions
for estimated losses on uncompleted contracts are made in the period in which
such losses are determined.




F-12
 Table of Contents





KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)









(2)
            Summary
      of significant accounting policies –
cont’d




(A)
            Revenue
      and cost recognition – cont’d




The
Company does not record any income from claims until the claims have been
received or awarded.




Revenues
recognized in excess of amounts billed are recorded as a current asset under the
caption “Costs and estimated earnings in excess of billings on uncompleted
contracts.”  Billings in excess of revenues recognized are recorded as
a current liability under the caption “Billings in excess of costs and estimated
earnings on uncompleted contracts.”




In
accordance with construction industry practice, the Company reports in current
assets and liabilities those amounts relating to construction contracts
realizable and payable over a period in excess of one year.




Fees for
the management of certain contracts are recognized when services are
provided.




(B)
            Cash
      and cash equivalents




The
Company considers all highly liquid instruments with original maturities of
three months or less to be cash equivalents.  At December 31, 2009 and
2008, cash equivalents consisted of money market accounts.




(C)
            Marketable
      securities




Marketable
securities, consisting of equity securities and mutual funds, are classified as
“available-for-sale” securities and are stated at fair market value based on
quoted market prices.  Realized gains and losses, determined using the
specific identification method, are included in earnings.  Unrealized
holding gains and losses are reported as comprehensive income (loss) in a
separate component of stockholders’ equity.




(D)
            Accounts
      and retainage receivable




Accounts
and retainage receivable from furnishing and installing heating, ventilating and
air conditioning systems and process piping systems are based on contracted
prices.  The Company may establish an allowance for uncollectible
trade accounts and retainage receivable based upon historical collection
experience and management’s periodic evaluation of the collectibility of
outstanding accounts and retainage receivable on an account-by-account
basis.  Accounts receivable and contract retentions are due based on
contract terms.  Amounts are deemed delinquent when




F-13
 Table of Contents





KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)









(2)
            Summary
      of significant accounting policies –
cont’d




(D)
            Accounts
      and retainage receivable – cont’d




they are
not received within their contract terms. Delinquent receivables are written-off
based on individual credit evaluation and specific circumstances of the
customer.





(E)
            Credit
      risk




Financial
instruments, which potentially expose the Company to concentrations of credit
risk, consist primarily of cash and trade accounts and retainage
receivables.




The
Company maintains its cash accounts at balances which exceed Federally insured
limits for such accounts.  The Company limits its credit risk by
selecting financial institutions considered to be highly
creditworthy.  At December 31, 2009, amounts in excess of federally
insured limits totaled approximately $11,776.




Trade
accounts and retainage receivables, at times, are due from government agencies,
municipalities and private owners located in the New York metropolitan
area.  The Company does not require collateral in most cases, but may
file claims or statutory liens against the construction projects if a default in
payment occurs.  Trade accounts and retainage receivables from the
Company’s three largest customers totaled approximately $7,979 and $12,846 at
December 31, 2009 and 2008, respectively.




(F)
            Property
      and equipment




Property
and equipment is stated at cost.  Depreciation is computed over the
estimated useful lives of the assets, generally five years, except for building
and improvements which is thirty-nine years, using the straight-line
method.  Leasehold improvements are amortized over the lesser of the
estimated useful lives of the assets to which they apply or the related lease
term.  Repairs and maintenance are charged to operations in the period
incurred.




(G)
            Income
      taxes




The
Company uses the asset and liability method of accounting for income taxes in
accordance with Accounting Standards.  Deferred taxes are recognized
for temporary differences between the bases of assets and liabilities for
financial statement and income tax purposes.  The temporary
differences relate primarily to different accounting methods used for
depreciation and amortization of property and equipment, goodwill and unrealized
gains and losses on marketable securities.  A valuation allowance is
recorded for deferred tax assets when it is more likely than not that
some





F-14
 Table of Contents





KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)









(2)
            Summary
      of significant accounting policies –
cont’d




(G)
            Income
      taxes – cont’d




or all of
the deferred tax assets will not be realized through future
operations.





(H)
            Earnings
      per share




Basic
earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding for the period.  Diluted earnings
per share reflect, in periods in which they have a dilutive effect, the effect
of common shares issuable upon the exercise of stock options.  The
difference between reported basic and diluted weighted average common shares
results from the assumption that all dilutive stock options outstanding were
exercised.  The weighted average common shares outstanding have been
adjusted to reflect the 2007 stock dividend.




(I)
            Use
      of estimates




The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period.  Actual results
could differ from those estimates, and such differences could be
material.




(J)
            Stock
      options




All share
based payments to employees and non-employee directors, including grants of
stock options, are recognized in the financial statements based on the awards
fair value at the date of grant.





The
Company uses the Black-Scholes option – pricing model, which requires the input
of subjective assumptions.  These assumptions include estimating the
length of time employees will retain their vested stock options before
exercising them (“expected term”), the estimated volatility of the Company’s
common stock price over the





F-15
 Table of Contents





KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)









(2)
            Summary
      of significant accounting policies –
cont’d




(J)
            Stock
      options – cont’d




expected
term and the number of options that will ultimately not complete their vesting
requirements (“forfeitures”).  Changes in the subjective assumptions
can materially affect the estimate of fair value of share-based compensation and
consequently, the related amount recognized on the consolidated statements of
income.





(K)
            Financial
      instruments




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 the balance sheet date.





(L)
            Impact
      of recently issued and adopted accounting
  standards




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.  References to GAAP issued by the FASB in these footnotes are
to the FASB Accounting
Standards Codification,sometimes referred to as the Codification or
ASC.  The FASB finalized the Codification effective for periods ending
on or after September 15, 2009.  Prior FASB standards are no longer
being issued by the FASB.





F-16
 Table of Contents





KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)









(2)
            Summary
      of significant accounting policies –
cont’d




(L)
            Impact
      of recently issued and adopted accounting standards –
    cont’d




In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 141 (revised 2007), “Business Combinations”, which is now a
subtopic within FASB ASC 805 “Business Combinations”.  FASB ASC 805-10
changes the accounting for acquisitions specifically eliminating the step
acquisition model, changing the recognition of contingent consideration from
being recognized when it is probable to being recognized at the time of
acquisition, disallowing the capitalization of transaction costs and changes
when restructurings related to acquisition can be recognized.  It is
effective for fiscal years beginning on or after December 15, 2008 and only
impacts the accounting for acquisitions that are made after
adoption.  The adoption of FASB ASC 805-10 did not have an effect on
the Company’s consolidated financial position or results of
operations.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB No. 51”, which is now a
subtopic within FASB ASC 810-10 “Consolidation”.  FASB ASC 810-10 is
effective for fiscal years beginning on or after December 15, 2008, with earlier
adoption prohibited.  FASB ASC 810-10 requires the recognition of a
noncontrolling interest (minority interest) as equity in the consolidated
financial statements and separate from the Company’s equity.  The
amount of net income attributable to the noncontrolling interest will be
included in consolidated net income on the face of the consolidated income
statement.  It also amends certain consolidation procedures for
consistency with the requirements of FASB ASC 805.  FASB ASC 810-10
also includes expanded disclosure requirements regarding the interests of the
parent and its noncontrolling interest.  The adoption of FASB ASC
810-10 did not have an effect on the Company’s consolidated financial position
or results of operations.




In June
2009, the FASB issued SFAS No. 166 “The Accounting for Transfers of Financial
Assets – an Amendment of FASB Statement 140”, currently included in FASB ASC
860, which clarifies circumstances under which a transferor has surrendered
control and, thus, should remove the asset together with any related liabilities
from its balance sheet.  It is effective for the Company beginning on
January 1, 2010.  Management does not expect the adoption to have a
material effect on the Company’s consolidated financial statements and related
disclosures.





F-17
 Table of Contents




KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)




(2)
              Summary
      of significant accounting policies –
cont’d
  (L)
              Impact
      of recently issued and adopted accounting standards –
    cont’d
  In June
2009, the FASB issued SFAS No. 167 “Amendments to FASB Interpretation No. 46
(R)”, currently included in FASB ASC 810, which modifies the analysis required
to identify controlling financial interest in variable interest
entities.  It is effective for the Company beginning on January 1,
2010.  Management does not expect the adoption to have a material
effect on the Company’s consolidated financial statements and related
disclosures.
  Effective
April 1, 2009, the Company adopted three accounting standard updates which were
intended to provide additional application guidance and enhanced disclosures
regarding fair value measurements and impairments of securities. The first
update, as codified in ASC 820-10-65, provides additional guidelines for
estimating fair value in accordance with fair value accounting. The second
update, as codified in ASC 320-10-65, changes accounting requirements for
other-than-temporary-impairments of debt securities by replacing the current
requirement that a holder have the positive intent and ability to hold an
impaired security to recovery in order to conclude an impairment was temporary
with a requirement that an entity conclude it does not intend to and it will not
be required to sell the impaired security before the recovery of its amortized
cost basis. The third update, as codified in ASC 825-10-65, increases the
frequency of fair value disclosures. These updates were effective for fiscal
years and interim periods ended after June 15, 2009. The adoption of these
accounting standard updates did not have a material impact on the Company’s
consolidated financial statements.
  (M)
                Subsequent
      events
 
 Accounting
rules require management to evaluate events and transactions through the date
the financial statements are issued and filed with the Security and Exchange
Commission.  Any events or transactions which have occurred subsequent
to December 31, 2009 through March 19, 2010 that would have a material impact on
the financial statements as of December 31, 2009 have been recognized or
disclosed.




F-18
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)




(3)
              Marketable
      securities
  The cost
and fair values of the marketable securities, classified as available-for-sale
securities at December 31, 2009 and 2008, were as follows:
  Cost
                    
                    
                    Gross
                      Unrealized
                      Holding
                      Gains
                    
                    
                    Gross
                      Unrealized
                      Holding Losses
                    
                    
                    Fair
                      ValueDecember
      31, 2009:Mutual
      funds and marketable equity securities
                    
                    $
                    1,872
                    
                    
                    $
                    68
                    
                    
                    $
                    (381
                    )
                    
                    $
                    1,559December
      31, 2008:Mutual
      funds and marketable equity securities
                    
                    $
                    1,860
                    
                    
                    $
                    50
                    
                    
                    $
                    (687
                    )
                    
                    $
                    1,223
  At
December 31, 2009 and 2008, gross unrealized holding losses on
available-for-sale securities were $381 and $687, respectively.  At
December 31, 2009 and 2008, gross unrealized holding gains on available-for-sale
securities were $68 and $50, respectively. The change in net unrealized holding
losses, net of tax, was a decrease of $179 for the year ended December 31,
2009.  The change in net unrealized holding losses, net of tax, was an
increase of $379 for the year ended December 31, 2008.  During the
years ended December 31, 2008 and 2007, available-for-sale securities were sold
for total proceeds of approximately $32 and $489, respectively.  The
gross realized gains on these sales totaled approximately $11 and $113 for the
years ended December 31, 2008 and 2007, respectively.
  FASB ASC
820-10, “Fair Value Measurements”, establishes a fair value hierarchy that
prioritizes observable and unobservable inputs used to measure fair value into
three broad levels which are described below:
 
 Level
      1:
              Quoted
      prices (unadjusted) in active markets that are accessible at the
      measurement date for identical assets or liabilities.  The fair
      value hierarchy gives the highest priority to Level 1
    inputs.
 
 Level
      2:
              Observable
      inputs other than Level 1 prices such as quoted prices for similar assets
      or liabilities; quoted prices in inactive markets; or model-derived
      valuations in which all significant inputs are observable or can be
      derived principally from or corroborated with observable market
      data.
  F-19
 Table of Contents
 KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)
 (3)
              Marketable
      securities – cont’d
  Level
      3:
              Unobservable
      inputs are used when little or no market data is available.  The
      fair value hierarchy gives the lowest priority to Level 3
      inputs.
 
 In
determining fair value, the Company utilizes valuation techniques that maximize
the use of observable inputs to the extent possible as well as considers
counterparty credit risk in its assessment of fair value.
 
 Financial
assets carried at fair value at December 31, 2009 are classified in the table
below in one of the three categories described above.
 
 Level 1
                        
                        
                        Level 2
                        
                        
                        Level 3
                        
                        
                        TotalMutual
      funds and marketable equity securities
                        
                        $
                        1,559
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,559
 
 Mutual
funds and marketable equity securities are valued using market prices on active
markets (Level 1).  Level 1 instrument valuations are obtained from
real-time quotes for transactions in active exchange markets involving identical
assets.
 
 (4)
              Accounts
      and retainage receivable
 2009
                    
                    
                    2008Accounts
      and retainage receivable:BilledContracts
      in progress
                    
                    $
                    5,681
                    
                    
                    $
                    16,682Completed
      contracts
                    
                    
                    6,581
                    
                    
                    
                    2,252Unbilled
                    
                    
                    76
                    
                    
                    
                    514$
                    12,338
                    
                    
                    $
                    19,448Retainage
      receivable
                    
                    $
                    6,637
                    
                    
                    $
                    9,097
  At
      December 31, 2009, retained contract receivables totaling $1,000 were not
      expected to be realized within one
year.


F-20
 Table of Contents




KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)









(5)
            Costs
      and estimated earnings on uncompleted
contracts




Costs and
estimated earnings on uncompleted contracts consists of the following at
December 31, 2009 and 2008:




2009
                      
                      
                      2008Costs
      incurred on uncompleted contracts
                      
                      $
                      57,059
                      
                      
                      $
                      80,603Estimated
      earnings
                      
                      
                      7,243
                      
                      
                      
                      12,11964,302
                      
                      
                      
                      92,722Less
      billings to date
                      
                      
                      64,090
                      
                      
                      
                      100,443$
                      212
                      
                      
                      $
                      (7,721
                      )




The above
amounts are included in the accompanying consolidated balance sheets under the
following captions:





2009
                      
                      
                      2008Costs
      and estimated earnings in excess of billings onuncompleted
      contracts
                      
                      $
                      1,979
                      
                      
                      $
                      229Billings
      in excess of costs and estimated earnings onuncompleted
      contracts
                      
                      
                      (1,767
                      )
                      
                      
                      (7,950
                      )$
                      212
                      
                      
                      $
                      (7,721
                      )





(6)
              Joint
      Venture




During
the third quarter of 2009, a joint venture in which the Company has 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 agreement provides
that each partner will share equally any gains or losses resulting from the
project.  If the other partner is unable to perform its work, 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 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 in the
joint venture agreement, or the partner’s failure to pay its subcontractors and
suppliers.





F-21
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)





(6)
            Joint
      Venture – cont’d




The
Company records in its consolidated statements of income revenue earned from the
performance of the mechanical portion of the joint venture contract, together
with its proportionate share of the revenue earned from the work of all other
joint venture subcontractors, except for revenue from the electrical work
performed by its joint venture partner.





(7)
              Property
      and equipment




Property
and equipment at December 31, 2009 and 2008 consisted of the
following:




2009
                    
                    
                    2008Land
                    
                    $
                    694
                    
                    
                    $
                    694Building
                    
                    
                    1,718
                    
                    
                    
                    1,718Machinery
      and equipment
                    
                    
                    803
                    
                    
                    
                    798Furniture
      and fixtures
                    
                    
                    967
                    
                    
                    
                    896Leasehold
      improvements
                    
                    
                    851
                    
                    
                    
                    8455,033
                    
                    
                    
                    4,951Less
      accumulated depreciation and amortization
                    
                    
                    2,341
                    
                    
                    
                    2,173$
                    2,692
                    
                    
                    $
                    2,778




Depreciation
and amortization expense relating to property and equipment was approximately
$168, $98 and $76 for the years ended December 31, 2009, 2008 and 2007,
respectively.




(8)
            Mortgage
      payable




During
December 2008, the Company purchased a pipe fabrication shop and an adjacent
storage yard in Bronx, New York, from the Company’s Chief Executive Officer and
a charitable foundation he controls at fair market value.





The
Company financed a portion of this purchase using a $1,176 mortgage with Bank of
America, N.A.  This mortgage has a ten year term, with interest
amortized over twenty years, with unpaid principal is due in a balloon payment
during December 2018.  The mortgage payable is at a variable interest
rate, and the Company used an interest swap instrument to convert the interest
rate that the Company pays to a fixed rate.  Monthly payments are
approximate $5 plus interest at 5%.  This mortgage is collateralized
by the real estate.





F-22
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)


(8)
            Mortgage
      payable – cont’d




Future
principal maturities of this mortgage payable are as follows as of December 31,
2009:





Year
      EndingDecember 31,
                  
                  Amount2010
                  
                  $
                  582011
                  
                  
                  582012
                  
                  
                  582013
                  
                  
                  582014
                  
                  
                  58Thereafter
                  
                  
                  822Total
                  
                  $
                  1,112





Costs
related to obtaining the mortgage debt are capitalized and amortized over the
term of the related debt using the straight-line method.  When the
loan is paid in full, any unamortized finance costs are removed from the related
accounts and charged to operations.  During December 2008, the Company
incurred costs related to the mortgage closing totaling
$44.    During the year ended December 31, 2009,
amortization expense charged to operations related to these deferred mortgage
costs totaled $4.  There was no amortization expense charged to
operations during the year ended December 31, 2008.  At December 31,
2009 and 2008, net deferred mortgage costs totaled $40 and $44, respectively,
and are included in the consolidated balance sheets as a long term asset under
the caption “Other”.





(9)
            Income
      taxes




For the
years ended December 31, 2009, 2008 and 2007, components of the provision for
income taxes are as follows:




2009
                  
                  
                  2008
                  
                  
                  2007CurrentFederal
                  
                  $
                  431
                  
                  
                  $
                  1,674
                  
                  
                  $
                  1,740State
      and local
                  
                  
                  357
                  
                  
                  
                  1,065
                  
                  
                  
                  1,094788
                  
                  
                  
                  2,739
                  
                  
                  
                  2,834DeferredFederal
                  
                  
                  14
                  
                  
                  
                  141
                  
                  
                  
                  144State
      and local
                  
                  
                  8
                  
                  
                  
                  85
                  
                  
                  
                  11022
                  
                  
                  
                  226
                  
                  
                  
                  254Totals
                  
                  $
                  810
                  
                  
                  $
                  2,965
                  
                  
                  $
                  3,088


F-23
 Table of
Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)





(9)
            Income
      taxes – cont’d




A
reconciliation of the provision for income taxes with amounts determined by
applying the statutory U.S. federal income tax rate to income before taxes is as
follows:




2009
                  
                  
                  2008
                  
                  
                  2007Computed
      tax at the federal statutory rate of 34%
                  
                  $
                  707
                  
                  
                  $
                  2,449
                  
                  
                  $
                  2,295State
      and local taxes, net of federal benefit
                  
                  
                  225
                  
                  
                  
                  781
                  
                  
                  
                  751Other
      items, net
                  
                  
                  (122
                  )
                  
                  
                  (265
                  )
                  
                  
                  42Provision
      for income taxes
                  
                  $
                  810
                  
                  
                  $
                  2,965
                  
                  
                  $
                  3,088




The
details of deferred tax assets and liabilities at December 31, 2009 and 2008 are
as follows:




2009
                  
                  
                  2008Deferred
      income tax assets:Amortization
      of goodwill
                  
                  $
                  -
                  
                  
                  $
                  14Property
      and equipment
                  
                  
                  60
                  
                  
                  
                  77Unrealized
      losses on marketablesecurities
                  
                  
                  141
                  
                  
                  
                  285Other
      tax carryforwards
                  
                  
                  26
                  
                  
                  
                  18Deferred
      income tax assets, net
                  
                  $
                  227
                  
                  
                  $
                  394




At
December 31, 2009 and 2008, the Company had net current deferred tax assets
totaling $141 and $299, respectively.  At December 31, 2009 and 2008,
the net non-current deferred tax assets total $86 and $95,
respectively.




Management
has evaluated its tax positions for the year ended December 31, 2009 and has
determined that it has no uncertain tax positions requiring financial statement
recognition as of December 31, 2009.





F-24
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)


(10)
            Stockholders’
      equity




(A)
            Stock
      option plans




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





In 1995,
the Board of Directors of the Company adopted the 1995 Plan.  This
plan enabled the Company to make incentive-based compensation awards to its
employees, officers, directors and consultants.  On August 8, 2005,
the Board of Directors extended the expiration date of the 526,667 outstanding
options to December 2010 from December 2005, and increased the exercise price to
$1.66 from $1.50. In addition, on August 8, 2005, the Company issued 80,000
options, at $1.66 per share, to an officer and three Directors.  The
plan expired December 2005; therefore, no new options can be granted under this
plan.




Accounting
Standards require all share-based payments to employees and non-employee
directors, including grants of stock options, to be recognized in the financial
statements based on the awards fair value at the date of grant.




At
January 1, 2007, the Company had 30,000 outstanding options at an exercise price
of $1.50 and 338,835 outstanding options at an exercise price of
$1.66.  At January 1, 2007, 26,667 options of the 338,835 outstanding
options exercisable at $1.66 have not vested.




For the
year ended December 31, 2007, the Company incurred compensation expense related
to the vesting of stock options totaling approximately $10.




During
2007, the Company’s Board of Directors declared a 5% stock dividend which
increased the total outstanding options to be issued under the Plan by
13,083.  During 2007, 192,916 stock options were
exercised.  At December 31, 2007, outstanding options totaled 189,002
of which 7,000 were not vested.





During
2008, 43,501 stock options were exercised under the 1995 plan.  At
December 31, 2009 and 2008, there were 145,501 outstanding and fully vested
options under the 1995 plan.





F-25
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)





(10)
            Stockholders’
      equity- cont’d




(A)
            Stock
      option plans- cont’d





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.  Under this plan the Company has issued to a Company director
options to purchase 20,000 shares of the Company’s common stock at an exercise
price of $6.95 per share.  At December 31, 2008, there were 20,000
options outstanding of which 6,666 were vested under the 2007 Plan.





On May 7,
2009, the Company issued to a Company director options to purchase 20,000 shares
of the Company’s common stock at an exercise price of $2.61 per
share.  At December 31, 2009, there were 40,000 options outstanding of
which 13,333 were vested under the 2007 plan.





As of
December 31, 2009, there were approximately $29 unrecognized compensation
expense related to unvested stock-based compensation awards.  That
cost is expected to be recognized over the next 2.4 years.





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 of 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





F-26
 Table of Contents




KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)










(10)
            Stockholders’
      equity- cont’d




(A)
            Stock
      option plans- cont’d




was
selected based upon yields of U.S. Treasury issues with a term equal to the
expected life of the option being valued.





Changes
that occurred in options outstanding during 2009, 2008 and 2007 for both plans
are summarized below:




Number
                                          ofShares
                                        
                                        
                                        2009
                                          Weighed
                                          Average
                                          Exercise
                                          Price
                                        
                                        
                                        Number of
                                          Shares
                                        
                                        
                                        2008
                                          Weighed
                                          Average
                                          Exercise
                                          Price
                                        
                                        
                                        Number of
                                          Shares
                                        
                                        
                                        2007
                                          Weighed
                                          Average
                                          Exercise
                                          PriceOutstanding
      at beginning ofyear
                                        
                                        
                                        165,501
                                        
                                        
                                        $
                                        2.23
                                        
                                        
                                        
                                        189,002
                                        
                                        
                                        $
                                        1.58
                                        
                                        
                                        
                                        368,835
                                        
                                        
                                        $
                                        1.65Expired/
      canceled
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        -Effect
      of stock dividend
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        
                                        
                                        
                                        
                                        13,083Granted
                                        
                                        
                                        20,000
                                        
                                        
                                        $
                                        2.61
                                        
                                        
                                        
                                        20,000
                                        
                                        
                                        $
                                        6.95
                                        
                                        
                                        
                                        -Exercised
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (43,501
                                        )
                                        
                                        $
                                        1.58
                                        
                                        
                                        
                                        (192,916
                                        )
                                        
                                        $
                                        1.60Outstanding
      at end of year
                                        
                                        
                                        185,501
                                        
                                        
                                        $
                                        2.27
                                        
                                        
                                        
                                        165,501
                                        
                                        
                                        $
                                        2.23
                                        
                                        
                                        
                                        189,002
                                        
                                        
                                        $
                                        1.58Exercisable
      at end of year
                                        
                                        
                                        158,834
                                        
                                        
                                        $
                                        2.03
                                        
                                        
                                        
                                        152,167
                                        
                                        
                                        $
                                        1.81
                                        
                                        
                                        
                                        182,002
                                        
                                        
                                        $
                                        1.58





F-27
 Table of Contents




KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)










(10)
            Stockholders’
      equity – cont’d




(A)
            Stock
      option plans- cont’d




The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the 20,000 grants in 2009:  dividend yield of 0%;
expected volatility of 56.84%; risk-free interest rate of 2.514%; and expected
lives of five years.  The fair value of these options issued in 2009
was $2.61 per share.





The
following weighted–average assumptions were used for the 20,000 grants in 2008;
dividend yield of 0%; expected volatility of 54.86%; risk-free interest rate of
3.265%; and expected lives of five years.  The fair value of those
options issued in 2008 was $5.15 per share.





Cash
proceeds, tax benefits and intrinsic value related to total stock options
exercised under both plans during the years end December 31, 2009, 2008 and 2007
respectively, are as follows:





2009
                    
                    
                    2008
                    
                    
                    2007Proceeds
      from stock options exercised
                    
                    $
                    -
                    
                    
                    $
                    68
                    
                    
                    $
                    309Tax
      benefits related to stock options exercised
                    
                    $
                    -
                    
                    
                    $
                    63
                    
                    
                    $
                    356Intrinsic
      value of stock options exercised
                    
                    $
                    -
                    
                    
                    $
                    201
                    
                    
                    $
                    790





The
following table summarizes information about stock options outstanding at
December 31, 2009:




Exercise Price
                            
                            
                            Shares
                            
                            
                            Contractual Life$
                            1.58
                            
                            
                            
                            126,000
                            
                            
                            .9 years$
                            1.58
                            
                            
                            
                            19,501
                            
                            
                            5.6 years$
                            2.61
                            
                            
                            
                            20,000
                            
                            
                            9.4 years$
                            6.95
                            
                            
                            
                            20,000
                            
                            
                            7.6 yearsTotal
                            
                            
                            
                            185,501





F-28
 Table of Contents




KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)









(10)
            Stockholders’
      equity – cont’d




(A)
            Stock
      option plans- cont’d




Shares
                  
                  
                  Average Price
                  
                  
                  Term in
                    Years
                  
                  
                  Intrinsic
                    ValueOutstanding
      Options
                  
                  
                  185,501
                  
                  
                  $
                  2.27
                  
                  
                  
                  3.07
                  
                  
                  $
                  356Exercisable
      Options
                  
                  
                  158,834
                  
                  
                  $
                  2.03
                  
                  
                  
                  2.08
                  
                  
                  $
                  259





(B)
            Dividend
      distributions




On June
2, 2009, the Company’s Board of Directors declared a cash dividend of $.10 per
share to shareholders of record as of June 29, 2009.  The aggregate
amount of the dividend was $624 and such dividend was paid on July 17,
2009.





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 and was paid
on June 17, 2008 to shareholders of record as of May 26, 2008.





On May 8,
2007, the Company’s Board of Directors declared a 5% stock dividend pursuant to
which 293,265 additional shares were issued on June 11, 2007 to shareholders of
record as of May 24, 2007.  Cash was paid in lieu of issuing
fractional shares based on the last sales price of the Company’s stock on the
record date.





(C)
            Preferred
      stock





The
Company is authorized to issue 1,000,000 shares of preferred
stock.  As of December 31, 2009, no shares of preferred stock had been
issued by the Company.





(D)
            Treasury
      stock





During
December 2008, the Company’s Board of Directors authorized the purchase, through
June 2009, of up to $1,000 of the Company’s common stock on the open
market.  As of December 31, 2009 and 2008, the Company purchased
52,700 and 6,600 shares of the Company’s common stock at a total cost of $140
and $16, respectively.





F-29
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)


(11)
              Earnings
      per share




2009
                  
                  
                  2008
                  
                  
                  2007Net
      earnings
                  
                  $
                  1,270
                  
                  
                  $
                  4,239
                  
                  
                  $
                  3,662Earnings
      per share – basic:Weighted
      average shares outstanding during the year
                  
                  
                  6,240,256
                  
                  
                  
                  6,278,555
                  
                  
                  
                  6,162,034Earnings
      per common share – basic
                  
                  $
                  .20
                  
                  
                  $
                  .68
                  
                  
                  $
                  .59Earnings
      per share – diluted:Weighted
      average shares outstanding during the year
                  
                  
                  6,240,256
                  
                  
                  
                  6,278,555
                  
                  
                  
                  6,162,034Effect
      of stock option dilution
                  
                  
                  43,284
                  
                  
                  
                  55,774
                  
                  
                  
                  80,573Total
      shares outstanding for purposes of calculating diluted earnings per
      share
                  
                  
                  6,283,540
                  
                  
                  
                  6,334,329
                  
                  
                  
                  6,242,607Earnings
      per common shares and common share equivalent – diluted
                  
                  $
                  .20
                  
                  
                  $
                  .67
                  
                  
                  $
                  .59




(12)
              Accumulated
      other comprehensive income
(loss)




At
December 31, 2009 and 2008, accumulated other comprehensive income and loss,
which consists of net unrealized holding gains (losses) on available-for-sale
securities, was as follows:




2009
                  
                  
                  2008Beginning
      balance
                  
                  $
                  (352
                  )
                  
                  $
                  27Current
      period change
                  
                  
                  179
                  
                  
                  
                  (379
                  )Ending
      balance
                  
                  $
                  (173
                  )
                  
                  $
                  (352
                  )





F-30
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)


(13)
            Commitments
      and contingencies




(A)
            Performance
      and payment bonds




The
Company is contingently liable to a surety under a general indemnity
agreement.  The Company agrees to indemnify the surety for any
payments made on contracts of suretyship, guaranty or indemnity 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.




(B)
            Operating
      lease




The
      Company is obligated under a non-cancelable operating lease, for office
      space with minimum future rental payments at December 31, 2009 as
      follows:




Year
      EndingDecember 31,2010
                  
                  $
                  2182011
                  
                  
                  2232012
                  
                  
                  2272013
                  
                  
                  2312014
                  
                  $
                  117TOTAL
                  
                  $
                  1,016




Under the
terms of the lease agreement, the Company is obligated to pay monthly rental
amounts of approximately $18, which escalates 2% each year.




The
      lease is a triple net lease which the Company pays any increases in real
      estate taxes over base year taxes, maintenance, insurance and
      utilities.  The current lease expires June 30,
      2014.  The lease has a provision which allows the Company to
      cancel the lease after one year.





Rent
expense for the years ended December 31, 2009, 2008 and 2007 amounted to
approximately $209, $199, and $195, respectively.





F-31
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)


(13)
            Commitments
      and contingencies - cont’d




(C)
            Operating
      lease- related party




The
Company had an operating lease for rental of office, shop and warehouse space,
which expired on December 31, 2002.  Prior to December 2008, the
Company rented this space on a month-to-month basis at approximately $8.5 per
month.  The Company purchased this building and adjacent yard in
December 2008 for a total purchase price of $2,500.




Rent
expense, for the years ended December 31, 2008 and 2007, amounted to
approximately $97 and $103, respectively.




(D)
            Environmental
      regulation




The
Company must comply with certain Federal, state and local regulations involving
contract compliance as well as the disposal of certain toxins.  In
management’s opinion, there are no environmental contingencies or violations of
environmental laws or regulations, which would have a material adverse impact on
the results of operations or on the Company’s financial condition.




(E)
              Legal




Other Proposals and
Claims.  During the course of its work on construction
projects, the Company may incur expenses for work outside the scope of its
contractual obligations, for which 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, claim recoveries 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.





(F)
            Employment
      agreement




The
Company’s Chief Executive Officer has a written employment agreement, which
expires on December 31, 2011.  This agreement provides a base annual
compensation of $450, medical insurance, disability insurance with payments
equal to 60% of base compensation, a $1 million policy of life insurance payable
as directed by him and a car with a chauffeur.  His estate is entitled
to two months pay in the event of his death.





F-32
 Table of Contents




KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)










(13)
            Commitments
      and contingencies - cont’d




(F)
            Employment
      agreement- cont’d




In
addition, for the period January 1, 2006 through December 31, 2009, he received
a bonus equal to 9.5% of the Company’s adjusted annual operating profits before
taxes, which are in excess of $250.  For the period January 1, 2010
through December 31, 2010, he will receive a bonus equal to 9.5% of the
Company’s adjusted annual profits before taxes which are in excess of
$100.  For the years ended December 31, 2009, 2008 and 2007 bonus
expense related to this agreement was $194, $733 and $683,
respectively.  At December 31, 2009, 2008, and 2007, accrued bonus
payable included in the accompanying consolidated balance sheets related to this
agreement was approximately $144, $233 and $683, respectively.





(14)
            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.  There have been
no borrowings against this credit facility.  This facility expires on
April 1, 2010, is secured by the Company’s assets and is guaranteed by the
Company’s subsidiary, KSW Mechanical Services, Inc.  (See Note
19(A)).





Advances
related to the facility in place at December 31, 2009 bear interest, based on
the Company’s option, at either the bank’s prime lending rate plus one percent
per annum, or the London Interbank Offered Rate (“Libor”) plus two and one-half
percent per annum.





(15)
            Concentration
      risks




(A)
            Labor
      concentrations




The
Company’s direct labor is supplied primarily by one union through a collective
bargaining agreement, which expires in June 2011.  Although the
Company’s past experience was favorable with respect to resolving conflicting
demands with unions, it is always possible that a protracted conflict may occur
which will impact the renewal of the collective bargaining
agreements.




(B)
            Contract
      revenue/significant customers




Revenues
from the Company’s largest customers were approximately 23%, 17%, 12%, 12% and
11% of its contract revenue in 2009; 27%, 16% and 11% of its contract revenue in
2008; and 46%,  20% and 13% of its contract revenue in
2007.





F-33
 Table of Contents


KSW,
INC. AND SUBSIDIARY
  NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 (CONTINUED)
 YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007
 (in
thousands, except share data)


(16)
            Retirement
      plans




(A)
            Profit-sharing/401(k)
      plan




The
Company sponsors a profit-sharing/401(k) plan covering employees not covered
under collective bargaining agreements who meet the age and length of service
requirements of the plan.  The Company may make discretionary
contributions to the plan.  The total of employee contributions may
not exceed Federal government limits.  The Company expensed
approximately $87, $89 and $87 as a 25% matching contribution for the years
ended December 31, 2009, 2008 and 2007, respectively.




(B)
              Multiemployer
      pension plans




Employees
of the Company who are parties to a collective bargaining (union) agreement are
covered by union pension plans. The Company makes contributions to multiemployer
pension plans that cover its various union employees.  These plans
provide benefits based on union members’ earnings and periods of coverage under
the respective plans.  The Company has expensed approximately $2,468,
$2,770 and $2,059 for the years ended December 31, 2009, 2008 and 2007,
respectively, related to multi-employer pension plans for its union
employees.




(17)
            Backlog




At
December 31, 2009, the Company had a backlog of approximately
$121,500.  Backlog represents the amount of revenue the Company
expects to realize from work to be performed on uncompleted contracts in
progress at year end and from contractual agreements on work which has not
commenced.





F-34
 Table of Contents




KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONTINUED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)










(18)
            Selected
      Quarterly Data (unaudited)




The
following is unaudited selected quarterly data for the years ended December 31,
2009 and 2008:





Year ended December 31, 2009First
                                
                                
                                Second
                                
                                
                                Third
                                
                                
                                FourthQuarter
                                
                                
                                Quarter
                                
                                
                                Quarter
                                
                                
                                Quarter
                                
                                
                                TotalRevenues
                                
                                $
                                19,706
                                
                                
                                $
                                16,621
                                
                                
                                $
                                13,181
                                
                                
                                $
                                14,986
                                
                                
                                $
                                64,494Gross
      profit
                                
                                $
                                1,822
                                
                                
                                $
                                1,555
                                
                                
                                $
                                1,742
                                
                                
                                $
                                1,891
                                
                                
                                $
                                7,010Net
      income
                                
                                $
                                287
                                
                                
                                $
                                123
                                
                                
                                $
                                264
                                
                                
                                $
                                596
                                
                                
                                $
                                1,270Per
      share:Basic
                                
                                $
                                .05
                                
                                
                                $
                                .02
                                
                                
                                $
                                .04
                                
                                
                                $
                                .10
                                
                                
                                $
                                .20Diluted
                                
                                $
                                .05
                                
                                
                                $
                                .02
                                
                                
                                $
                                .04
                                
                                
                                $
                                .09
                                
                                
                                $
                                .20Dividends
                                
                                $
                                -
                                
                                
                                $
                                .10
                                
                                
                                $
                                -
                                
                                
                                $
                                -
                                
                                
                                $
                                .10Stock
      prices:High
                                
                                $
                                3.05
                                
                                
                                $
                                2.94
                                
                                
                                $
                                4.42
                                
                                
                                $
                                3.92Low
                                
                                $
                                2.00
                                
                                
                                $
                                2.21
                                
                                
                                $
                                2.59
                                
                                
                                $
                                3.26




Year ended December 31, 2008First
                
                
                Second
                
                
                Third
                
                
                FourthQuarter
                
                
                Quarter
                
                
                Quarter
                
                
                Quarter
                
                
                TotalRevenues
                
                $
                20,491
                
                
                $
                21,998
                
                
                $
                25,527
                
                
                $
                25,011
                
                
                $
                93,027Gross
      profit
                
                $
                2,317
                
                
                $
                3,162
                
                
                $
                3,709
                
                
                $
                2,929
                
                
                $
                12,117Net
      income
                
                $
                840
                
                
                $
                1,074
                
                
                $
                1,321
                
                
                $
                1,004
                
                
                $
                4,239Per
      share:Basic
                
                $
                .13
                
                
                $
                .17
                
                
                $
                .21
                
                
                $
                .17
                
                
                $
                .68Diluted
                
                $
                .13
                
                
                $
                .17
                
                
                $
                .21
                
                
                $
                .16
                
                
                $
                .67Dividends
                
                $
                -
                
                
                $
                .20
                
                
                $
                -
                
                
                $
                -
                
                
                $
                .20Stock
      prices:High
                
                $
                7.04
                
                
                $
                5.95
                
                
                $
                5.19
                
                
                $
                5.30Low
                
                $
                5.54
                
                
                $
                4.61
                
                
                $
                3.00
                
                
                $
                1.79





F-35
 Table of Contents




KSW,
INC. AND SUBSIDIARY




NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


(CONCLUDED)


YEARS
ENDED DECEMBER 31, 2009, 2008 AND 2007


(in
thousands, except share data)










(19)
              Subsequent
      events




(A)
            Line
      of Credit





On
January 15, 2010, the Company extended the working capital credit facility with
Bank of America, N.A for a term expiring March 31, 2011.





(B)
            Dividend





On
      March 9, 2010, the Company’s Board of Directors declared a cash dividend
      of $.10 per share.  The dividend will be payable on May 24, 2010
      to shareholders of record as of April 26,
2010.





F-36
 Table of Contents





EXHIBIT
INDEX





Exhibit No.
                
                Description3.1
                
                Amended
      and Restated Articles of Incorporation of KSW, Inc. (incorporated herein
      by reference to Exhibit 3.1 to the Company’s Registration Statement on
      Form S-8 (No. 333-217350), filed with the Commission on February 13,
      1997).3.2
                
                Amended
      and Restated By-Laws of KSW, Inc. (incorporated herein by reference to
      Exhibit 3.2 to the Company’s Registration Statement on Form S-8 (No.
      333-217350), filed with the Commission on February 13,
    1997).10.1
                
                Form
      of Modification of Lease Agreement dated as of May 1, 1998 by and between
      KSW, Inc, Irvjoy Partners, L.P. and I BLDG Co., Inc. (incorporated herein
      by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K
      for the fiscal year ended December 31, 1998 (Commission File No.
      001-32865), filed with the Commission on March 30,
  1999).10.2
                
                1995
      Stock Option Plan of KSW, Inc. (incorporated herein by reference to
      Exhibit 10.3 to the Company’s Registration Statement on Form 10
      (Commission File No. 001-32865), filed with the Commission on November 24,
      1995).10.3
                
                Employment
      Agreement, dated September 12, 2005 by and between the Company, KSW
      Mechanical Services, Inc. and Floyd Warkol (incorporated herein by
      reference to Exhibit 10.20 to the Company’s Current Report on Form 8-K
      (Commission File No. 001-32865), filed with the Commission on September
      12, 2005).10.4
                
                Amendatory
      Employment Agreement, dated as of March 6, 2007, by and between the
      Company, KSW Mechanical Services, Inc., and Floyd
      Warkol.  (incorporated herein by reference to Exhibit 10.4 to
      the Company’s annual report on Form 10-K for the year ended December 31,
      2006, filed on March 14, 2007).10.5
                
                Line
      of Credit Agreement Letter, dated March 14, 2006, between KSW, Inc. and
      Bank of America, N.A. together with forms of a Line of Credit Note, Rider
      to Line of Credit Note, a pledge security agreement and guaranty
      (incorporated herein by reference to Exhibit 10.21 to the Company’s Annual
      Report on Form 10-K for the year ended December 31, 2005, filed with the
      Commission on March 16,
2006).





Table of Contents





10.6
              
              Line
      of Credit Agreement Letter, dated March 8, 2007, between KSW, Inc. and
      Bank of America, N.A. (incorporated herein by reference to Exhibit 10.6 to
      the Company’s Annual Report on Form 10-K for the year ended December 31,
      2006, filed with the Commission on March 14, 2007).10.7
              
              Line
      of Credit Agreement Letter, dated January 28, 2008, between KSW, Inc. and
      Bank of America, N.A. (incorporated
      herein by reference to Exhibit 10.7 to the Company's Annual Report on Form
      10-K for the year ended December 31, 2008, filed with the Commission on
      March 25, 2009).10.8
              
              Line
      of Credit Agreement Letter, dated January 26 2009, between KSW, Inc. and
      Bank of America, N.A. (incorporated
      herein by reference to Exhibit 10.8 to the Company's Annual Report on Form
      10-K for the year ended December 31, 2008, filed with the Commission on
      March 25, 2009).10.9
              
              KSW,
      Inc. 2007 Stock Option Plan (incorporated herein by reference to Appendix
      E to the Company’s definitive proxy statement on Schedule 14A for the 2008
      annual meeting of stockholders, filed with the Commission on April 4,
      2008).10.10
              
              Line
      of Credit Agreement Amendment No. 1, dated January 15, 2010 between KSW,
      Inc. and Bank of America, N.A.11.1
              
              Statement
      Regarding Computation of Net Earnings Per Share.21.1
              
              Subsidiaries
      of Registrant23.1
              
              Consent
      of BDO Seidman, LLP23.2
              
              Consent
      of J.H. Cohn LLP31.1
              
              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.
      Section 1350.32.2
              
              Certification
      of Chief Financial Officer required by Rule 13a-14(b) and 18 U.S.C.
      Section 1350.