UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                  ____________

                                    FORM 10-K

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

(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, 2005

                                       OR

          [_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ______________ to ______________

                         Commission file number: 0-27290

                                _________________

                                    KSW, INC.
             (Exact Name of Registrant as Specified in its Charter)

            Delaware                                     11-3191686
   (State or Other Jurisdiction                       (I.R.S. Employer
  of Incorporation or Organization)                   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: NONE

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

                          Common Stock, $.01 par value
                                (Title of Class)

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]


<PAGE>
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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and larger accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large Accelerated Filer [_]  Accelerated Filer [_]  Non-Accelerated Filer [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, 2005 was $ 6,830,866 (based on a
price of $1.60 per share).

As of March 15, 2006, there were 5,640,311 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.

<PAGE>
<TABLE>
<S>             <C>                                                                                             <C>
FORWARD-LOOKING STATEMENTS...................................................................................................2

PART I.......................................................................................................................3

         ITEM 1.          BUSINESS...........................................................................................3

         ITEM 1A.         RISK FACTORS.......................................................................................7

         ITEM 1B.         UNRESOLVED STAFF COMMENTS..........................................................................8

         ITEM 2.          PROPERTIES.........................................................................................9

         ITEM 3.          LEGAL PROCEEDINGS..................................................................................9

         ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................................9

                          EXECUTIVE OFFICERS OF THE REGISTRANT...............................................................9

PART II......................................................................................................................10

         ITEM 5.          MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED MATTERS AND ISSUER
                          PURCHASES OF EQUITY SECURITIES.....................................................................10

         ITEM 6.          SELECTED FINANCIAL DATA............................................................................11

         ITEM 7.          MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                          OPERATIONS.........................................................................................12

         ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK..........................................25

         ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................................................25

         ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...............25

         ITEM 9A.         CONTROLS AND PROCEDURES............................................................................25

         ITEM 9B.         OTHER INFORMATION..................................................................................26

PART III.....................................................................................................................26

         ITEM 10.         DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................................................26

         ITEM 11.         EXECUTIVE COMPENSATION.............................................................................26

         ITEM 12.         SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
                          AND RELATED STOCKHOLDER MATTERS....................................................................26

         ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED
                          TRANSACTIONS.......................................................................................26

         ITEM 14.         PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................................................27

PART IV......................................................................................................................27

         ITEM 15.         EXHIBITS AND FINANCIAL STATEMENT SCHEDULES ........................................................27

SIGNATURES...................................................................................................................31
</TABLE>
<PAGE>
                           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", "will"
or other similar words or phrases. Such forward-looking statements concerning
management's expectations, strategic objectives, business prospects, anticipated
economic performance and financial condition and other similar matters involve
known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of results to differ
materially from any future results, performance or achievements discussed or
implied by such forward-looking statements. 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.


                                       2
<PAGE>
                                     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 $500,000. 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 Over-the-Counter Bulletin Board under the symbol "KSWW.OB." The
Company has filed a listing application to list its common stock on the American
Stock Exchange ("AMEX"). The Company's listing on this exchange is subject to
the approval of AMEX.

     Some of the Company's ongoing projects include: Fashion Institute of
Technology Residence Hall, Weill Cornell Ambulatory Care Facility, the
conversions from office space to residential rental apartments in lower
Manhattan at 100 Maiden Lane, 37 and 67 Wall Street, and new high rise luxury
buildings at Fifteen Central Park West, 170 East End Avenue and 10 Barclay
Street.

     The Company's primary strategic objectives are to increase its revenues and
to become more competitive in its present business. 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.

     The Company's primary business is providing heating, ventilation and air
conditioning systems and process piping systems under direct contracts with
owners of buildings or subcontracts with general contractors or construction
managers. These contracts sometimes are awarded through competitive bids, as
some of the owners are public entities. Other contracts are obtained through
negotiation with private parties.

     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 believes that this service can
provide additional bidding opportunities in the future.

     The Company's management pioneered the concept of managing the mechanical
trade portion of construction projects. On larger complex projects (generally
those having a mechanical portion valued at over $10,000,000), such as the Weill
Cornell Ambulatory Care Facility, Morgan Stanley Children's Hospital at New York
Presbyterian and the Long Island Jewish Hospital Energy Center, 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 construction
managers can more accurately evaluate design alternatives so that the completed
construction documents balance costs and project objectives. As a mechanical


                                       3
<PAGE>
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
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 lowering bids by allowing smaller contractors to compete for the subcontract
work. 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 accurate 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 the guaranteed work on its own should bid
prices exceed its estimate. These costs are subject to certain risk factors
discussed in "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations."

     While trade management projects provide a net profit margin similar to that
for contracting 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
excess of the GMP. There is no assurance that potential cost overruns will not
exceed this contingency.

     OPERATIONS. The Company obtains projects primarily through negotiations
with private owners, construction managers and general contractors and by
competitive bidding and negotiations in response to advertisements by federal,
state and local governmental agencies. The Company submits bids after detailed
reviews of project specifications, an internal review of the Company's
capabilities, equipment and personnel availability, and an assessment of whether
the project is likely to meet the targeted profit margins. After computing the
estimated costs of the project, the Company adds its desired profit margin
before submitting a bid.

     The Company believes it has been successful in the competitive bidding
process because it is selective in the projects on which it bids and has highly
skilled personnel familiar with the local market. The Company strives to avoid
costly bidding errors by becoming thoroughly familiar with all aspects of a
project and developing 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. 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.


                                       4
<PAGE>
     The Company 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 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 has a backlog (anticipated revenue from the
uncompleted portions of awarded projects) of orders totaling approximately
$82,200,000 as of December 31, 2005, compared to approximately $36,000,000 as of
December 31, 2004, and approximately $20,900,000 at December 31, 2003. See the
discussion of the restatements in "Item 6 - Selected Financial Data" and "Item 7
- Management's Discussion and Analysis of Financial Condition and Results of
Operations." Approximately $68,000,000 of the December 31, 2005 backlog is
expected to be completed in the next fiscal year. The backlog at December 31,
2005 does not include a $9,000,000 contract which is subject to the project's
owner obtaining financing. The Company is actively seeking new contracts to add
to its backlog. Management believes that its value engineering services will
lead to a greater number of contracts to bid, because the Company is able to be
part of the initial planning of a project.

     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 started and
completed in the same year. The Company believes that its backlog is firm,
notwithstanding provisions contained in some contracts which allows 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.

     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. The Company believes it competes
favorably with such companies because of its reputation in the New York City
area and its knowledge of the local labor force. 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 union workers.

     REGULATIONS. The construction industry is subject to various governmental
regulations from local, state and federal authorities, such as 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 impact 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. The Company must also comply with federal rules and
regulations promulgated by OSHA.


                                       5
<PAGE>
     EMPLOYEES. At December 31, 2005, 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
penalties.

     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. Thus, the Company does not
accrue liabilities for pension and medical benefits to union retirees. 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. Through 2005, the Company has matched 25% of its
employees' 401(k) contributions.

     DEPENDENCE UPON CUSTOMERS. At any given time, a material portion of the
Company's contracting revenue may be generated from a single large contract for
a customer or various contracts with one customer. 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, 2005, work under contracts with Bovis Lend
Lease LMB, Inc., Newmark Construction Services, LLC and related entities,
Skanska USA Building Inc., M.D. Carlisle Construction Corp., and Plaza
Construction Corp. constituted 31%, 11%, 11%, 11% and 10% of the Company's total
revenues, respectively.

     For the year ended December 31, 2004, work under contracts with Bovis Lend
Lease LMB, Inc., Newmark Construction Services, LLC and related entities, and
Glenwood Management Corporation, constituted 32%, 23% and 16% of the Company's
total revenues, respectively.

     For the year ended December 31, 2003, work under contracts with Bovis Lend
Lease LMB, Inc., Glenwood Management Corporation and Newmark Construction
Services, LLC and related entities, constituted 43%, 27% 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.

     As is sometimes required in the industry, the Company is 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


                                       6
<PAGE>
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, 2005, approximately $14,700,000 of the Company's $82,200,000
backlog required bonds. During the fourth quarter of 2005, the Company entered
into a surety agreement with Chubb Group of Insurance Companies to provide
surety bonds on the Company's projects.

     OTHER MATTERS. The Company does not own any patents, patent rights or
similar intellectual property. The Company's business is not subject to large
seasonal variations. The Company did not expend funds for research and
development during 2005, 2004 and 2003, and anticipates no research and
development expenses in 2006.

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 "Business", "Management's
Discussion and Analysis of Financial Condition and Result 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. For these reasons, the reader is cautioned
not to place undue reliance on our forward-looking statements.

The Company has a written employment agreement with Floyd Warkol, its Chairman
and CEO, which expires on December 31, 2007. The Company has no other current
employment or non-competition agreements with senior management. The failure to
retain senior management would have a material adverse effect on the Company's
business.

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 in the future.

There have been 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 beyond the Company's estimates.

An economic downturn could result in a decrease in construction spending in the
private and public sectors, which could reduce the Company's revenues.


                                       7
<PAGE>
The Company relies on certain customers for a significant share of its revenues.
The loss of any of these 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 request that
the Company 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. Slow receipt of collections may also result
from general contractor or owner financial difficulties. The failure of an owner
or general contractor to issue change orders or make payments could delay
receipt of revenue and require litigation to collect sums due the Company.

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 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.

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 require performance
bonds, there is no guarantee that the Company will not incur a material loss due
to performance issues related to these arrangements.

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 experiences 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 ability to
profitably execute the Company's work is the ability to attract, develop and
retain qualified personnel. The Company's success in attracting qualified
personnel is dependent on the resources available and the impact of general
economic conditions on the labor supply, and the ability to provide competitive
compensation.

ITEM 1B. UNRESOLVED STAFF COMMENTS

     Not Applicable.


                                       8
<PAGE>
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 has 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 on real estate taxes over
base year taxes, maintenance, insurance and utilities. The Company has exercised
a three-year option extending the lease through June 2009.

     The Company also 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 occupies an adjacent 5,000
square foot storage yard. This property is jointly owned by the Company's Chief
Executive Officer and a charitable foundation he controls. This tenancy is on a
triple net basis. The Company pays rent of approximately $8,500 per month, plus
taxes (currently approximately $2,000 per month), maintenance, insurance and
utilities. The written lease for this property expired on December 31, 2002 and
the property is currently being occupied on a month-to-month basis.

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

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of stockholders during the fourth
quarter of 2005.

                      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, 2005 were as follows:


Name                          Age        Title
----                          ---        -----
Floyd Warkol                  58         Chief Executive Officer, President,
                                         Secretary and Chairman of the Board of
                                         Directors

Richard W. Lucas              39         Chief Financial Officer

James F. Oliviero             59         General Counsel


     Mr. Floyd Warkol has been employed as Chairman of the Board since December
15, 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.


                                       9
<PAGE>
     Mr. Richard W. Lucas has been employed as the Chief Financial Officer of
the Company and KSW Mechanical, since August 2002. Prior thereto, he was
employed from May 1994 through July 2002 by Marden, Harrison & Kreuter CPAs,
P.C., the Company's independent certified public accountants. 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. From January 1994 until February 1998,
he was employed as Director of Contract Administration of KSW Mechanical.

                                     PART II

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

     The Company's Common Stock is quoted on the Over-the-Counter Bulletin Board
under the symbol "KSWW.OB."

     At March 15, 2006, the Company had 5,640,311 shares of KSW Common Stock
issued and outstanding held by approximately 3,200 shareholders of record based
on shareholder lists provided by the Company's stock transfer agent and the
Depository Trust Company.

     The Company did not pay dividends during 2005 or 2004.

     The following information on high and low bid information is provided for
2005 and 2004 based on intraday quotation information:

<TABLE>
<CAPTION>
                                                          2005                                 2004
                                                          ----                                 ----
                Quarter                         High                 Low              High              Low
                -------                         ----                 ---              ----              ---
<S>                                      <C>              <C>                <C>               <C>
First...............................          $    .75         $      .40          $   1.01          $   .62
Second..............................          $    1.80        $      .66          $   1.05          $   .65
Third...............................          $    2.30        $     1.60          $    .80          $   .62
Fourth..............................          $    3.10        $     2.06          $    .75          $   .40
</TABLE>

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

The information required to be disclosed for securities authorized for issuance
under equity compensation plans, is incorporated in its entirety by reference to
the Company's definitive proxy statement to be filed with commission pursuant to
Regulation 14A within 120 days after the Company's last fiscal year.


                                       10
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

     The following information for the years ended December 31, 2005, 2004,
2003, and 2001 is derived from and qualified by reference to, the financial
statements for those years audited by Marden, Harrison & Kreuter CPAs, P.C. The
summary of certain financial information relating to the Company for the year
ended December 31, 2002 (as restated) is derived from and qualified by reference
to, the financial statements for the year audited by Rosen Seymour Shapss Martin
& Company, LLP. Previous year amounts have been reclassified to conform to the
presentation. Each of the previously mentioned financial statements is included
herein or in prior years' annual reports on Form 10-K and Form 10-K/A, and
should be read in conjunction with such financial information.

<TABLE>
<CAPTION>
                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                           -------------------------------
                                             (DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                                           2005            2004             2003             2002            2001
                                                                                        (Restated)
<S>                                     <C>           <C>           <C>              <C>              <C>
INCOME STATEMENT:
Revenues.............................     $53,378         $26,281         $35,002          $46,448 (a)     $51,012
Costs of revenues....................      46,897          24,139          31,148           40,808 (a)      49,153
Gross profit.........................       6,481           2,142           3,854            5,640           1,859 (b)
Selling, general and
administrative expenses..............       3,657           3,452           3,010            4,196           4,499
Operating income (loss)..............       2,824          (1,310)            844            1,444          (2,640)
Other income (expense)...............          39              52             (59)            (107)            (55)
Income (loss) before income taxes....       2,863          (1,258)            785            1,337          (2,695)
Provision (benefit) for income
   taxes.............................         152 (c)          22             (30)           1,714 (c)      (1,218)
Income (loss) before cumulative
   effect of change in accounting
   principle.........................       2,711          (1,280)            815             (377)         (1,477)
Cumulative effect of change in
   accounting principle net..........           -               -               -           (1,888)(d)           -
Net income (loss)....................       2,711          (1,280)            815           (2,265)         (1,477)
Net income (loss) per share -
    Basic............................         .50            (.24)            .15             (.41)           (.27)
    Diluted..........................         .50            (.24)            .15             (.41)           (.27)
Number of shares used in
   computation :
    Basic............................   5,470,311       5,470,311       5,470,311        5,470,311       5,470,311
    Diluted..........................   5,470,311       5,470,311       5,470,311        5,470,311       5,470,311

BALANCE SHEET DATA:
Total assets.........................     $22,710         $13,913         $16,834          $17,171         $27,620
Working capital......................       8,056           3,181           4,496            3,495           5,213
Current liabilities..................      13,192           7,127           8,785           10,029          18,149
Long-term liabilities................           -               -               -                -              19
Stockholders' equity.................       9,518           6,786           8,049            7,142           9,452
Other Data:
Current ratio........................      1.61:1          1.45:1          1.51:1           1.35:1          1.29:1
</TABLE>


                                       11
<PAGE>
(a) The Company's management identified and determined that reported revenues
and costs of revenues during the year ended December 31, 2002 were overstated as
a result of an accounting error attributable to the failure to eliminate certain
intra-company accounts. The Company restated these previously reported amounts
and, with the oversight of its Audit Committee, corrected its financial
reporting system. Gross profit for the year did not change due to the offsetting
effects of the misstatements.

(b) For the year ended December 31, 2001, the Company experienced a gross profit
erosion primarily due to lower than anticipated productivity and higher labor
costs on several projects which commenced during the later half of 2000 and
completed during 2001. As a result of these contract losses, the Company changed
its estimating and bidding practices.

(c) During the year ended December 31, 2002, the Company recorded a valuation
allowance totaling $1,045 against its deferred tax assets, at the recommendation
of the Company's outside auditors engaged in the preparation of the 2002 audit.
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 could be used in their entirety, and concluded the
valuation allowance was not required.

(d) For the year ended December 31, 2002, the Company recorded a cumulative
effect of a change in accounting principle for the write-off of goodwill as a
result of the adoption of SFAS 142, which accounted for $1,888 of the net loss.

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, 2005, 2004 and 2003, including:

         o factors that affect our business;
         o our earnings and costs in the periods presented;
         o changes in earnings and costs between periods;
         o sources of earnings, and
         o impacts of these factors on our overall financial condition.


                                       12
<PAGE>
     As you read this discussion and analysis, please refer to the Company's
consolidated statements for the years ended 2005, 2004 and 2003.

     At the end of January 2004, the Company's management identified and
determined that reported revenues and costs of revenues during the year ended
2002 and the nine months ended September 30, 2003, including their respective
interim periods, were overstated. This overstatement was a result of an
accounting error attributable to the failure to eliminate certain intra-company
accounts as disclosed by the Company on February 2, 2004, in a press release, a
copy of which was attached as an exhibit to the Current Report on Form 8-K of
the same date. This overstatement did not affect previously reported gross
profit, operating income, net income (loss) or earnings (loss) per share for the
affected periods. The Company's previously issued statements of operations for
the year ended 2002, and nine months ended September 30, 2003, including their
respective interim periods, should not be relied upon as to the revenues and
costs of revenues reported in such statements as a result of these accounting
errors. The Form 10-K for 2003 and the Form 10-K/A for 2002 restated the
overstated amounts to correct the accounting error. Management, with oversight
from the Audit Committee, analyzed and corrected the Company's internal
financial reporting system.

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 $500,000. 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 bidding and
negotiated bidding processes submitted to project owners or construction
managers, many of whom the Company has long standing commercial relationships.

     The Company is awarded many of its contracts by providing value engineering
assistance, whereby the Company recommends changes to project plans. This
assistance reduces costs and yields the same results as the original designs.

     The Company's profitability is dependent on its ability to 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 revenue 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.


                                       13
<PAGE>
     For the year ended December 31, 2005, the Company's earnings increased as a
result of (1) increased volume with primarily the same overhead structure as in
the prior year, (2) the settlement of the Co-Op City litigation, and (3) the
reversal of the deferred tax asset valuation allowance.

     (1) Even though the Company's revenues increased 103.1%, during 2005, the
     Company was not required to materially increase office overhead to support
     this increase in revenues. In addition, the Company does not anticipate a
     major increase in office overhead will be needed to complete the
     $82,200,000 backlog as of December 31, 2005.

     (2) On October 17, 2005, KSW Mechanical Services, Inc., a wholly-owned
     subsidiary of the Company, entered into a Stipulation of Settlement
     settling a lawsuit commenced in 1999, entitled KSW Mechanical Services,
     Inc. v. NAB Construction Corp. et. al. ("the Lawsuit"), which had been
     pending in the Supreme Court of the State of New York, County of Queens.
     KSW Mechanical Services, Inc. had sued the general contractor and its
     bonding company on the Co-Op City Project to recover its accounts
     receivable applicable to the base contract of approximately $437,000,
     unpaid final retainage billings of approximately $1,500,000, plus a claim
     for unanticipated costs incurred through 1998 in the sum, as presented at
     trial, of $2,303,727. The Defendant had asserted counterclaims, as
     presented at trial, totaling $1,440,905, and a claim for $3,000,000 based
     on the argument that KSW Mechanical's mechanic's lien was willfully
     overstated.

     The Lawsuit was tried for 47 days and further trial proceedings were
scheduled. Pursuant to the Stipulation of Settlement, all claims and
counterclaims were discontinued, and the Company will receive cash payments
totaling $2,900,000, with $1,200,000 having been paid as of December 15, 2005,
$850,000 payable on or before March 31, 2006, and $850,000 payable on or before
September 30, 2006. During the quarter ended December 31, 2005, the Company
recognized a pretax net gain, after settlement expenses, of approximately
$888,000, related to this matter.

     (3) During 2001, the Financial Accounting Standards Board issued SFAS 142,
     Goodwill and Other Intangible Assets establishing, as of January 1, 2002, a
     test whereby the fair value of goodwill is compared to its carrying value.
     Based upon this test, the goodwill of the Company was written-off during
     the first quarter of 2002. This write-off of goodwill created an increase
     in the deferred tax assets. At December 31, 2002, the Company provided a
     valuation allowance (or reserve) against its net deferred tax assets based
     upon the uncertainty regarding the ultimate realization (or use) in their
     entirety of these deferred tax assets. At December 31, 2004, the
     outstanding deferred tax asset valuation was $1,220,000. During the nine
     months ended September 30, 2005, the Company generated profits, which
     reduced this deferred tax valuation allowance by $461,000. Based upon the
     Company's current income and the Company's backlog as of September 30,
     2005, management re-evaluated the likelihood that these assets could be
     used in their entirety, and concluded that the valuation allowance was not
     required. At September 30, 2005, the Company reversed the remaining
     deferred tax valuation allowance totaling approximately $759,000.


                                       14
<PAGE>
     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. In order to
minimize these future escalations, on March 28, 2005, the Company entered into
an agreement with a supplier of steel piping materials whereby the Company
committed to purchase a minimum of $1,400,000 of steel piping materials at fixed
prices, over a fifteen month period commencing January 1, 2005. As of December
31, 2005, the Company made purchases under this agreement of approximately
$1,200,000 and anticipates no problem in completing its obligation. The Company
is in the process of seeking bids for a new provider of steel piping material
since the current agreement expires March 31, 2006.

     During the year ended December 31, 2004, the Company took steps to further
control its office cost management. These steps included reduction in office
staff, as well as the Company's Chief Executive Officer reducing his salary by
20%, with a proportionate reduction in his work week. During the latter half of
2005, the Company's Chief Executive Officer resumed a five-day work week and
also negotiated a new employment agreement.

     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 and continued low interest
rates, both of which relate to the strength of the building industry and the
type of projects the Company has the ability to obtain. Increasing governmental
deficits could also affect the amount of new governmental financed projects
which the Company would 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 City metropolitan area.

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 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 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.


                                       15
<PAGE>
     The Company believes the following accounting policies represent critical
accounting policies. Critical accounting policies are those that are both most
important to the portrayal of a company's financial condition and results and
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. We discuss our
significant accounting policies in Note 2 to the Company's consolidated
financial statements, including those that do not require management to make
difficult, subjective, or complex judgments or estimates.

     Accounting for revenue recognition for construction contracts
     -------------------------------------------------------------

     The Company recognizes revenue for long-term construction contacts 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
determine the anticipated total costs at completion, based on facts and
circumstances known at the time. Any revision 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 carried on the books until they are acknowledged by the owner or
contractor.

     Accounting for income taxes
     ---------------------------

     Judgment is required in developing the Company's provision for income
taxes, including the determination of deferred tax assets, valuation allowances
that might be required against the deferred tax assets, and liabilities. At
December 31, 2002, the Company recorded a valuation allowance against its net
deferred tax assets totaling $1,045,000. For the year ended December 31, 2003,
the Company had net income, which utilized a portion of the deferred tax asset
and reduced the deferred tax valuation allowance by $406,000. For the year ended
December 31, 2004, the Company had a net loss, which increased the deferred tax
asset and increased the deferred tax valuation allowance by $581,000. At
December 31, 2004, the outstanding deferred tax asset valuation was $1,220,000.
During the nine months ended September 30, 2005, the Company generated profits,
which reduced this deferred tax valuation allowance by $461,000. As previously
stated, during the third quarter of 2005, management re-evaluated the likelihood
that the deferred tax assets could be realized in their entirety and concluded
that the valuation allowance was not required. At September 30, 2005, the
Company reversed the outstanding deferred tax valuation allowance, totaling
approximately $759,000.


                                       16
<PAGE>
RESULTS OF OPERATIONS

     The following table, (dollar amounts in thousands), sets forth the amount
of, and as a percentage of total revenues, certain items of the Company's
statement of operations for the periods indicated:

<TABLE>
<CAPTION>
                                                2005                     2004                        2003
                                                ----                     ----                        ----

                                        AMOUNT     PERCENT         AMOUNT     PERCENT        AMOUNT         PERCENT
                                      ----------  ----------     ----------  ----------    ----------     ----------

<S>                                 <C>          <C>         <C>           <C>          <C>           <C>
REVENUES..........................    $  53,378       100.0      $  26,281      100.0      $  35,002         100.0
COSTS OF REVENUES.................       46,897        87.9         24,139       91.8         31,148          89.0
                                      ----------  ----------     ----------  ----------    ----------     ----------
GROSS PROFIT......................        6,481        12.1          2,142        8.2          3,854          11.0
EXPENSES
     Selling, general and
     administrative expenses......        3,657         6.8          3,452       13.1          3,010           8.6
                                      ----------  ----------     ----------  ----------    ----------     ----------
OPERATING INCOME (LOSS)...........        2,824         5.3         (1,310)      (4.9)           844           2.4
OTHER INCOME (EXPENSES)...........           39          .1             52         .1            (59)          (.2)
                                      ----------  ----------     ----------  ----------    ----------     ----------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES........        2,863         5.4         (1,258)      (4.8)           785           2.2

PROVISION (BENEFIT) FOR
INCOME TAXES......................          152           3             22         .1            (30)          (.1)
                                      ----------  ----------     ----------  ----------    ----------     ----------
NET INCOME (LOSS).................    $   2,711         5.1      $  (1,280)      (4.9)     $     815           2.3
                                      ==========  ==========     ==========  ==========    ==========     ==========
</TABLE>

YEAR ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31, 2004

Revenues
--------

     Revenues from the Company's projects increased $27,097,000, or 103.1%, to
$53,378,000 for the year ended December 31, 2005, as compared to $26,281,000 for
the year ended December 31, 2004. This increase in revenues was primarily a
result of the Company's increased number of contracts in progress at December
31, 2004, as well as projects the Company obtained during 2005. Revenues for the
fourth quarter of 2005 were $17,101,000, an increase of $10,224,000, as compared
to $6,877,000 for the fourth quarter of 2004. The revenues in the fourth quarter
of 2005 include approximately $963,000 related to the Company's settlement of
the Co-Op City litigation. At December 31, 2005, the Company had backlog of
approximately $82,200,000. Approximately $68,000,000 of the December 31, 2005
backlog is expected to be completed in the next fiscal year. The backlog at
December 31, 2005 does not include a $9,000,000 contract which commencement is
subject to the project's owner obtaining financing. The Company is actively
seeking new projects to add to its backlog.


                                       17
<PAGE>
     During the year ended December 31, 2005, the Company earned 31%, 11%, 11%,
11% and 10% of revenues, respectively, from its 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 $ 22,758,000 or 94.3% to $46,897,000 for the
year ended December 31, 2005, as compared to $24,139,000 for the year ended
December 31, 2004. Costs of revenues for the fourth quarter of 2005 were
$14,407,000, an increase of $8,068,000, as compared to $6,339,000 for the fourth
quarter of 2004. Costs of revenues include subcontractor cost, field labor,
material, equipment and overhead expenses. Overhead costs include project
supervision and drafting salaries, as well as insurance costs. The increases in
costs of revenues correspond to the changes in revenue noted above, since higher
revenues generally require higher expenditures of costs. During the fourth
quarter of 2005, the Company incurred expenses related to the Co-Op City
litigation settlement of approximately $75,000.

     During year ended December 31, 2004, costs of revenue were increased by the
following factors which were not present in 2005: increased costs of steel
piping products, revenues insufficient to absorb job-costed project supervision
and drafting salaries, and increased labor costs incurred by the Company to
retain experienced field labor personnel. These factors did not have the same
impact in 2005, and management does not expect these conditions to have the same
impact in the future. The Company has reduced pricing volatility on purchases of
steel piping material by entering into an agreement to purchase these products
at fixed prices. The Company is in the process of seeking bids for a new
provider of steel piping material, since the current contract expires March 31,
2006. In addition, increased revenues and backlog have allowed the Company to
allocate the cost of project supervision and drafting salaries over multiple
projects and to more effectively utilize its experienced field labor personnel.

Gross Profit
------------

     For the year ended December 31, 2005, the Company had a gross profit of
$6,481,000, or 12.1% of revenues, as compared to $2,142,000, or 8.2% of
revenues, for the year ended December 31, 2004. In the fourth quarter of 2005,
the gross profit was $2,694,000, or 15.8% of revenues, as compared to $538,000,
or 7.8% of revenues, for the fourth quarter of 2004. The increased dollar amount
in gross profits was primarily a result of the overall increase in revenues. In
addition, during the 2005 fourth quarter, the gross profit includes an $888,000
gain on the settlement of the Co-Op City project claim litigation.

Selling, General and Administrative Expenses
--------------------------------------------

     For the year ended December 31, 2005, selling, general and administrative
("S,G&A") expenses increased $205,000, or 5.9%, to $3,657,000 compared to
$3,452,000 for the year ended December 31, 2004. During the fourth quarter 2005,
S,G&A expenses were $826,000 as compared to $566,000 for the same period in
2004, an increase of $260,000. For the above yearly and quarterly periods, the


                                       18
<PAGE>
Company's increase in S,G&A was primarily a result of the administration of
increased revenues, including an increase in employment costs and office
expenses. These increased costs include the Company's Chief Executive Officer
resuming a five day work week, and the hiring of additional office staff. In
addition, professional fees related to the Company's public filings with the
Securities and Exchange Commission, as well as an increase in utility costs
related to its office during 2005, contributed to this increase.

Other Income
------------

     Other income for the year ended December 31, 2005 decreased $13,000 or
(25.0)% to $39,000, as compared to $52,000 for the year ended December 31, 2004.
During the years ended December 31, 2005 and 2004, the Company realized gains on
sales of marketable securities totaling $15,000 and $48,000, respectively.
During the years ended December 31, 2005 and 2004, the Company earned net
interest income of $24,000 and $4,000, respectively.

Provision (benefit) for Income Taxes
------------------------------------

     The income tax expense for the year ended December 31, 2005 was $152,000,
or 5.3% of income before taxes compared to income tax expense of $22,000, or
1.7% of the loss before income taxes for in 2004.

     The provision for income taxes differs from the Company's effective income
tax rate primarily due to a deferred income tax valuation allowance. During
2001, the Financial Accounting Standards Board issued SFAS 142, Goodwill and
Other Intangible Assets establishing, as of January 1, 2002, a test whereby the
fair value of goodwill is compared to its carrying value. Based upon this test,
the goodwill of the Company was written-off during the first quarter of 2002.
This write-off of goodwill created an increase in the deferred tax assets.

     At December 31, 2002, the Company provided a valuation allowance (or
reserve) against its net deferred tax assets based upon the uncertainty
regarding the ultimate realization (or use) in their entirety of these deferred
tax assets. At December 31, 2004, the outstanding deferred tax asset valuation
allowance was $1,220,000. During the nine months ended September 30, 2005, the
Company generated profits which reduce this deferred tax valuation allowance by
$461,000. Based upon the Company's backlog as of September 30, 2005, management
reevaluated the likelihood that these assets could be used in their entirety,
and concluded that the valuation allowance was not required. At September 30,
2005, the Company reversed the outstanding deferred tax valuation allowance
totaling approximately $759,000.

     State and local tax rates are not affected by the above, but are determined
by the Company's net worth.


                                       19
<PAGE>
      YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003

Revenues
--------

     Revenues decreased $8,721,000, or (24.9)%, to $26,281,000 for the year
ended December 31, 2004, as compared to $35,002,000 for the year ended December
31, 2003. These declines were primarily a result of a decreased number of
projects available to bid due to market conditions. Revenue for the fourth
quarter of 2004 was $6,877,000, a reduction of $3,335,000, as compared to
$10,212,000 for the fourth quarter of 2003. Included in the fourth quarter of
2003 results were approximately $714,000 of reimbursements of costs incurred due
to delays on two government contracts. Costs associated with these claims were
incurred in previous quarters. At December 31, 2004, the Company had backlog of
$36,000,000.

     During the year ended December 31, 2004, the Company earned 32%, 23% and
16% of its revenue, 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 decreased by $7,009,000, or (22.5%), to $24,139,000 for
the year ended December 31, 2004 compared to $31,148,000 for the year ended
December 31, 2003. Costs of revenues as a percentage of revenues increased by
2.8% during the year ended December 31, 2004, as compared to the year ended
December 31, 2003. Costs of revenues for the fourth quarter 2004 were
$6,339,000, a reduction of $2,047,000 as compared to $8,386,000 for the fourth
quarter of 2003. As previously mentioned, the change in costs of revenues during
2004, as compared to 2003, was attributed partially to the increased cost of
steel piping products, reduced revenues limiting project supervision and
drafting salaries from being job costed to multiple projects, as well as
increased labor costs incurred by the Company to retain experienced field labor
personnel.


Gross profit
------------

     For the year ended December 31, 2004, the Company had a gross profit of
$2,142,000 or 8.2%, as compared to $3,854,000 or 11.0% for the year ended
December 31, 2003. In the fourth quarter of 2004, the gross profit was $538,000
or 7.8% as compared to $1,826,000 or 17.9% for the same period in 2003. The
decline in gross profit for the year ended December 31, 2004, as compared to the
year ended December 31, 2003, was primarily a result of the overall decline in
revenues as well as the effect of price increases of steel piping materials and
increased labor costs to retain experienced labor.

     The decline in the fourth quarter ended December 31, 2004, as compared to
the same period in 2003, was attributed to the overall decline in revenues, and
the 2003 fourth quarter results included claim revenue of approximately
$714,000.


                                       20
<PAGE>
Selling, general and administrative expenses
--------------------------------------------

     For the year ended December 31, 2004, selling, general and administrative
("S,G&A") expenses increased $442,000 or 14.7% to $3,452,000 from $3,010,000 for
the year ended December 31, 2003. During the fourth quarter ended December 31,
2004, S,G&A expenses were $566,000 as compared to $998,000 for the same period
in 2003, a decrease of $432,000. For the yearly and quarterly periods above,
these changes were primarily a result of the job costing of overhead costs to
trade management contracts and the reduction in office overhead. A legal
settlement during the first quarter of 2003 affected only the yearly
comparisons.

     As previously discussed, during the year ended December 31, 2004, the
Company took additional steps to reduce its S,G & A expenses by eliminating
certain office positions. In addition, the Company's Chief Executive Officer
reduced his salary by 20% with a proportionate reduction in his work week. These
cost savings did not become fully recognized until the fourth quarter of 2004
due to severance costs incurred during the third quarter of 2004. During the
second half of 2004, the Company started the trade management contract at the
Weill Cornell Ambulatory Care Building, a contract of approximately $17.7
million. On trade management projects, certain administration costs are job
costed instead of being carried in S,G&A costs. The above factors contributed to
the decrease in S,G&A expenses during the fourth quarter of 2004, as compared to
the same period in 2003.

     During 2003, legal costs were approximately $570,000, which related to a
lawsuit with Stroock & Stroock & Lavan, LLP ("Stroock"), as well as the
litigation with NAB Construction Corp. regarding the Co-Op City project. During
the year ended December 31, 2003, the Company reached a settlement related to
its legal action against Stroock, whereby Stroock paid the Company approximately
$850,000, and dismissed its counterclaim for payment of legal fees. This
settlement reduced S,G&A expenses during the first quarter of 2003. During the
fourth quarter of 2003, S,G&A expenses were also higher due to the Company
substantially completing all of its trade management contracts.

Other income (expenses)
-----------------------

     Other income for the year ended December 31, 2004 was $52,000 as compared
to other expenses of $59,000 for the year ended December 31, 2003. For the year
ended December 31, 2004, the Company realized gains on sales of marketable
securities totaling $48,000 as compared to realized losses on sales of
marketable securities of $30,000 for the same period in 2003. The remaining
other expense during 2003 was attributed to the Company incurring interest
charges related to the utilization of its line of credit. During 2004, the
Company earned interest income of $4,000.

Provision (benefit) for income tax
----------------------------------

     The income tax expense for the year ended December 31, 2004 was $22,000, or
1.7% of the net loss compared to an income tax benefit for the year ended
December 31, 2003 of $30,000 or 3.8% of the taxable income. During 2004, net
losses during the period resulted in a $581,000 increase in the valuation
allowance against the Company's deferred tax asset. During 2003, the Company
utilized $406,000 of the deferred tax asset valuation allowance. Without these
provisions, income tax expense as a percentage of taxable income would have been
approximately 50%.


                                       21
<PAGE>
Net income (loss)
-----------------

     As a result of all of the items mentioned above, the Company generated a
net loss of $1,280,000 in 2004, as compared to net income of $815,000 in 2003.


LIQUIDITY AND CAPITAL RESOURCES

General
-------

     The Company's principal capital requirement is to fund its work on
construction projects. Projects are billed on a monthly basis based on the work
performed to date. These project billings, less a withholding of retention which
is received as the project nears completion, are collectible based on their
respective contract terms. The Company has historically relied primarily on
internally generated funds and bank borrowings to finance its operations. The
Company has not relied on bank borrowings to finance its operations since July
2003. On March 28, 2005, the Company obtained a line of credit, which is subject
to certain conditions. See discussion of Credit Facility below.

     As of December 31, 2005, cash balances totaled $5,199,000, a $2,239,000
increase from the $2,960,000 reported as of December 31, 2004.


Cash provided by (used in) operations
-------------------------------------

     Net cash provided by operating activities was $2,325,000 in 2005 and
$1,043,000 in 2003. Net cash used in operating activities was $168,000 in 2004.
The cash provided by operations in both 2005 and 2003 was primarily due to
increases in operating income. During 2004, the cash used in operations was
primarily the result of losses incurred during the period that were partially
offset by receivables collected in excess of cash payments made.

Cash used in investing activities
---------------------------------

     Net cash used in investing activities was $86,000 in 2005, $28,000 in 2004
and $16,000 in 2003. The Company purchased marketable securities of $163,000,
$685,000 and $513,000 during 2005, 2004 and 2003, respectively. The Company
received proceeds on the sale of marketable securities of $153,000, $676,000 and
$506,000 during 2005, 2004 and 2003, respectively. In addition, the Company
purchased property and equipment totaling $76,000, $19,000 and $9,000 during
2005, 2004 and 2003, respectively.


                                       22
<PAGE>
Cash used in financing activities
---------------------------------

     During 2005 and 2004, no cash was provided by or used in financing
activities. Net cash used in financing activities was $387,000 in 2003, due to
the Company repaying its line of credit.

Credit Facility
---------------

     On March 28, 2005, the Company obtained a line of credit facility from
Fleet National Bank, a Bank of America Company, which provides borrowings for
working capital purposes up to $2,000,000. This facility expires on April 1,
2006, is secured by the Company's assets and is guaranteed by the Company's
subsidiary, KSW Mechanical Services, Inc.

     The amount of advances available was subject to certain profitability and
net worth requirements. The Company has met all of the prerequisite profit and
net worth requirements and may borrow against the full amount of the line. There
were no borrowings against this facility during 2005.

     On March 14, 2006, the Company's bank extended the working capital credit
facility for a one year term expiring April 2007.

     Advances bear interest at the bank's prime lending rate plus one percent
per annum.

     Payment of outstanding borrowings 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, or the Company ceasing
operations or being unable to pay its debts. Unless renewed, any outstanding
borrowings against this 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 required, is
solely at the discretion of the surety and is primarily based upon the Company's
net worth, working capital, the number and size of projects under construction
and the surety's relationship with management. The Company is contingently
liable to the surety under a general indemnity agreement. The Company agrees to
indemnify the surety for any payments made on contracts of suretyship, guaranty
or indemnity as a result of the Company not having the financial capacity to
complete projects. Management believes the likelihood of the surety having to
complete projects is remote. The contingent liability is the cost of completing


                                       23
<PAGE>
all bonded projects, which is an undeterminable amount because it is subject to
bidding by third parties. Management believes that all contingent liabilities
will be satisfied by the Company's performance on the specific bonded contracts
involved. The surety provides bonding solely at its discretion, and the
arrangement with the surety is an at-will arrangement subject to termination.

     The Company's bonding limits have been sufficient given the volume and size
of the Company's contracts. The Company's surety may require that the Company
maintain certain tangible net worth levels, and may require additional
guarantees if the Company should desire increased bonding limits. At December
31, 2005, the Company's bonded backlog was approximately $14,700,000.

     During the second quarter of 2005, the Company's former surety advised that
it was winding down its operations and after a transition period, it would no
longer be writing surety bonds. This withdrawal from the market did not affect
currently bonded jobs.

     During the fourth quarter of 2005, the Company entered into a new surety
relationship with Chubb Group of Insurance Companies to provide surety bonds on
the Company's projects. The surety has provided the Company with a $90,000,000
work program, subject to adjustments for trade management contracts and
non-bonded contracts.

CONTRACTUAL OBLIGATIONS

     As of December 31, 2005, outstanding contractual obligations are as
follows:

<TABLE>
<CAPTION>
                                                         PAYMENTS DUE BY PERIOD
                                                         ----------------------

   CONTRACTUAL                                    LESS THAN 1                                               AFTER
   OBLIGATIONS                      TOTAL             YEAR              4-5 YEARS         1-3 YEARS        5 YEARS
   -----------                      -----             ----              ---------         ---------        -------
<S>                       <C>                 <C>                <C>               <C>               <C>
Long- term debt                $       -         $      -                $    -          $     -           $   -

Capital leases
                                       -                -                     -                -               -
Operating leases (a)                685,000          191,000               494,000             -               -

Purchase obligations under
construction contracts (b)          200,000          200,000                  -                -               -

Other long-term obligations           -                -                      -                -               -
                               -------------     ------------           ------------     -----------       ---------
Total                          $    885,000      $   391,000            $  494,000       $     -           $   -
                               =============     ============           ============     ===========       =========
</TABLE>

(a)  The Company is obligated to pay monthly rental payments of approximately
     $16,000 on its lease for office in Long Island City, New York. The Company
     has exercised its option to extend the lease for the period July 2006
     through June 2009.

(b)  On March 28, 2005, the Company entered into an agreement with a supplier of
     steel piping materials, whereby the Company has committed to purchase a
     minimum of $ 1,400,000 of steel piping materials over a fifteen month
     period, at fixed unit prices. As of December 31, 2005, the Company made
     purchases of approximately $1,200,000 under this agreement.


                                       24
<PAGE>
OFF -BALANCE SHEET ARRANGEMENTS

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     The Company does not utilize futures, options or other derivative
instruments. As of December 31, 2005, the Company has invested $774,000 in
managed stock funds.

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 from Part IV
of this Annual Report on Form 10-K.

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

     No disclosure required.


ITEM 9A. 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 our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of December 31, 2005. Based on that evaluation, its Chief Executive Officer
and Chief Financial Officer concluded that its disclosure controls and
procedures were not effective as of December 31, 2005, in that the Company did
not issue current reports on Form 8-K in connection with two press releases
which announced quarterly revenues and income. The Company has taken steps to
correct this from happening in the future.

     Except as noted, there has been no change in the Company's internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the Company's fourth fiscal quarter ended December 31,
2005, that has materially affected or is reasonably likely to materially affect
the Company's internal control over financial reporting.


                                       25
<PAGE>
ITEM 9B. OTHER INFORMATION

         None.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     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 this 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 our 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 this 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.

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

     The information required to be disclosed pursuant to this 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

     The information required to be disclosed pursuant to this 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.


                                       26
<PAGE>
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information required to be disclosed pursuant to this 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 statement and financial statement schedules.

     See Index to consolidated financial statements and financial statement
     schedules on page F-1 of this Form 10-K

      3.  Exhibits


                                       27
<PAGE>
  No.                             Description
  ---                             -----------

 3.1      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).

10.7      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. 0-27290), filed with the Commission on March 30,
          1999).

10.8      Settlement and Release, dated June 11, 2002, by and between KSW, Inc.,
          Floyd Warkol, Burton Reyer, Robert Brussel and the Helionetics
          Official Committee of Unsecured Creditors (incorporated herein by
          reference to Exhibit 10.1 to the Company's Current Report on Form 8-K
          (Commission File No. 0-27290), filed with the Commission on July 12,
          2002).

10.9+     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. 0-27290), filed with the Commission on November
          24, 1995).

10.10     WCMA Loan And Security Agreement, dated as of May 30, 2001, between
          KSW Mechanical Services, Inc. and Merrill Lynch Business Financial
          Services, Inc. (incorporated herein by reference to Exhibit 10.10 to
          the Company's Annual Report on Form 10-K for the fiscal year ended
          December 31, 2003 (Commission File No. 0-27290), filed with the
          Commission on March 30, 2004).

10.11     WCMA Line of Credit Extension letter, dated January 27, 2004 and WCMA
          Line of Credit Extension Agreements dated November 13, 2002 and
          December 12, 2001, respectively, between KSW Mechanical Services,
          Inc., KSW, Inc., Energy Alternatives, Inc. and Merrill Lynch Business
          Financial Services, Inc. (incorporated herein by reference to Exhibit
          10.11 to the Company's Annual Report on Form 10-K for the fiscal year
          ended December 31, 2003 (Commission File No. 0-27290), filed with the
          Commission on March 30, 2004).

--------------
+    Management contracts or compensatory plans or arrangements required to be
     filed as an exhibit pursuant to Item 15 (c) of the rules governing the
     preparation of this report.

                                       28
<PAGE>


10.12     Agreement of Indemnity, dated May 24, 2001, by and among KSW, Inc.,
          KSW Mechanical Services, Inc. and XL Specialty Insurance Company
          (incorporated herein by reference to Exhibit 10.12 to the Company's
          Annual Report on Form 10-K for the fiscal year ended December 31, 2003
          (Commission File No. 0-27290), filed with the Commission on March 30,
          2004)

10.13+    Employment Agreement, dated April 1, 2003, by and between Floyd Warkol
          and the Company (incorporated herein by reference to Exhibit 10.13 to
          the Company's Annual Report on Form 10-K for the fiscal year ended
          December 31, 2003 (Commission File No. 0-27290), filed with the
          Commission on March 30, 2004)

10.14     WCMA Line of Credit Extension Letter, dated June 30, 2004
          (incorporated herein by reference to Exhibit 10.14 to the Company's
          Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
          2004 (Commission File No. 0-27290), filed with the Commission on
          August 16, 2004).

10.15+    Employment Agreement by and among KSW Mechanical Services, Inc., the
          Company and Floyd Warkol, dated as of April 1, 2004 (incorporated
          herein by reference to Exhibit 10.1 to the Company's Quarterly Report
          on Form 10-Q for the fiscal quarter ended September 30, 2004
          (Commission File No. 0-27290), filed with the Commission on November
          15, 2004).

10.16+    Amendatory Employment Agreement, dated November 10, 2004, by and
          between the Company, KSW Mechanical Services, Inc. and Floyd Warkol
          (incorporated herein by reference to Exhibit 10.1 to the Company's
          Current Report on Form 8-K (Commission File No. 0-27290), filed with
          the Commission on November 16, 2004).


10.17     Line of Credit Agreement letter, dated March 28, 2005, between KSW,
          Inc. and Fleet National Bank, a Bank of America Company together with
          forms of a Line of Credit Note, Rider to Line of Credit Note , a
          pledge security agreement and guaranty.

----------------
+    Management contracts or compensatory plans or arrangements required to be
     filed as an exhibit pursuant to Item 15 (c) of the rules governing the
     preparation of this report.


                                       29
<PAGE>
10.18+    Compensation Arrangements with Certain Executive Officers.

10.19+    Compensation of Non-Employee Directors

10.20     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. 0-27290), filed with the Commission
          on September 12, 2005.

10.21     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.

11        Statement Regarding Computation of Net Earnings (Loss) Per Share.


21.1      List of Subsidiaries

23.1      Consent of Marden, Harrison & Kreuter, CPAs, P.C.

31.1      Certification of Chief Executive Officer required by Rule 13a-14(a).

31.2      Certification of Chief Financial Officer required by Rule 13a-14(a).

32.1      Certification of Chief Executive Officer required by Rule 13a-14(b)
          and 18 U.S.C. Section 1350.

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


------------------
+    Management contracts or compensatory plans or arrangements required to be
     filed as an exhibit pursuant to Item 15 (c) of the rules governing the
     preparation of this report.


                                       30
<PAGE>
                                   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 Warkol
                                        ----------------------------------------
                                        Floyd Warkol
                                        President, Chief Executive Officer,
                                        Secretary and Chairman of the Board of
                                        Directors (Principal Executive Officer)
                                        March 15, 2006

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

                                         /s/ Floyd Warkol
                                         ---------------------------------------
                                         Floyd Warkol
                                         President, Chief Executive Officer,
                                         Secretary and Chairman of the Board of
                                         Directors (Principal Executive Officer)
                                         March 15, 2006



                                         /s/ Russell Molina
                                         ---------------------------------------
                                         Russell Molina
                                         Director
                                         March 15, 2006


                                         /s/ Stanley Kreitman
                                         ---------------------------------------
                                         Stanley Kreitman
                                         Director
                                         March 15, 2006

                                         /s/ Innis O'Rourke
                                         ---------------------------------------
                                         Innis O'Rourke
                                         Director
                                         March 15, 2006

                                         /s/ Warren O. Kogan
                                         ---------------------------------------
                                         Warren O. Kogan
                                         Director
                                         March 15, 2006


                                          /s/ John A. Cavanagh
                                          --------------------------------------
                                          John A. Cavanagh
                                          Director
                                          March 15, 2006


                                          /s/ Richard W. Lucas
                                          --------------------------------------
                                          Richard W. Lucas
                                          Chief Financial Officer
                                         (Principal Financial Officer and
                                          Principal Accounting Officer)
                                          March 15, 2006


                                       31

<PAGE>
                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

                                                                         PAGE
                                                                         ----

Report of Independent Registered Public Accounting Firm                   F-2

Consolidated Financial Statements:

Consolidated Balance Sheets                                              F-3-4

Consolidated Statements of Operations                                     F-5

Consolidated Statements of Comprehensive Income (Loss)                    F-6

Consolidated Statements of Stockholders' Equity                           F-7

Consolidated Statements of Cash Flows                                    F-8-9

Notes to Consolidated Financial Statements                              F-10-34

Schedule II- Schedule of Valuation and Qualifying Accounts                F-35













                                       32
<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

To the Board of Directors and Stockholders
KSW, Inc. and Subsidiary
37-16 23rd Street
Long Island City, New York 11101

We have audited the accompanying consolidated balance sheets of KSW, Inc. and
subsidiary as of December 31, 2005 and 2004, and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2005.
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
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated 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, 2005 and 2004, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2005 in conformity with U.S. generally accepted accounting
principles.

Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying financial
statement Schedule II is presented for additional analysis and is not a required
part of the basic consolidated financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and in our opinion, are fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.


Marden, Harrison & Kreuter
Certified Public Accountants, P.C.

/s/ Marden, Harrison & Kreuter


White Plains, New York
February 9, 2006, except for Note 17,(A) and (B), as to which the dates are
February 13, 2006 and March 1, 2006, and for Note 17(C) as to which the date is
March 14, 2006.


                                      F-2
<PAGE>
                            KSW, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS

                           DECEMBER 31, 2005 AND 2004
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

<TABLE>
<CAPTION>
                                                                                        2005                    2004
                                                                                      ---------              ---------
<S>                                                                                  <C>                    <C>
        A S S E T S

Current assets:
    Cash                                                                              $   5,199              $   2,960
    Marketable securities                                                                   774                    709
    Accounts receivable, net                                                             11,887                  4,211
    Retainage receivable                                                                  2,764                  1,988
    Costs and estimated earnings in excess of billings on
       uncompleted contracts                                                                480                    236
    Prepaid expenses and other receivables                                                  144                    204
                                                                                      ---------              ---------

                  Total current assets                                                   21,248                 10,308






Property and equipment, net                                                                 112                     98
Accounts receivable                                                                           -                  2,037
Deferred income taxes and other                                                           1,350                  1,470
                                                                                      ---------              ---------

        Total assets                                                                  $  22,710              $  13,913
                                                                                      =========              =========



                                   (continued)


                                      F-3
<PAGE>
                                                                                        2005                   2004
                                                                                      ---------              ---------
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                                                                  $   9,533              $   4,906
    Retainage payable                                                                     1,576                  1,021
    Accrued payroll and benefits                                                            542                    220
    Accrued expenses                                                                        206                    148
    Billings in excess of costs and estimated earnings on
       uncompleted contracts                                                              1,335                    832
                                                                                      ---------              ---------

                  Total current liabilities                                              13,192                  7,127
                                                                                      ---------              ---------

Commitments and contingencies (Note 9)

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,
       5,470,311 shares issued and outstanding                                               54                     54
    Additional paid-in capital                                                            9,729                  9,729
    Accumulated deficit                                                                    (347)                (3,058)
    Accumulated other comprehensive income:
       Net unrealized holding gains on available for sale securities                         82                     61
                                                                                      ---------              ---------

                  Total stockholders' equity                                              9,518                  6,786
                                                                                      ---------              ---------

                  Total liabilities and stockholders' equity                          $  22,710              $  13,913
                                                                                      =========              =========
</TABLE>









                 See notes to consolidated financial statements.




                                      F-4
<PAGE>
                            KSW, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

                   ------------------------------------------

<TABLE>
<CAPTION>
                                                                        2005             2004             2003
                                                                    ------------     ------------      -----------
<S>                                                                 <C>              <C>               <C>
Revenues                                                            $     53,378     $     26,281      $    35,002

Costs of revenues                                                         46,897           24,139           31,148
                                                                    ------------     ------------      -----------

Gross profit                                                               6,481            2,142            3,854

Selling, general and administrative expenses                               3,657            3,452            3,010
                                                                    ------------     ------------      -----------

Operating income (loss)                                                    2,824           (1,310)             844
                                                                    ------------     ------------      -----------

Other income (expense):

Interest income (expense), net                                                24                4              (29)
Gain (loss) on sales of marketable securities                                 15               48              (30)
                                                                    ------------     ------------      -----------

Total other income (expenses)                                                 39               52              (59)
                                                                    ------------     ------------      -----------

Income (loss) before provision (benefit) for income
taxes                                                                      2,863           (1,258)             785

Provision (benefit) for income taxes                                         152               22              (30)
                                                                    ------------     ------------      -----------

Net income (loss)                                                   $      2,711     $     (1,280)     $       815
                                                                    ============     ============      ===========

Basic and diluted income (loss) per common share                    $        .50     $       (.24)     $       .15
                                                                    ============     ============      ===========

Weighted average common shares outstanding -

Basic                                                                  5,470,311        5,470,311        5,470,311

Diluted                                                                5,470,311        5,470,311        5,470,311

</TABLE>








                 See notes to consolidated financial statements.




                                      F-5
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                 (IN THOUSANDS)

                ------------------------------------------------

<TABLE>
<CAPTION>
                                                                       2005             2004              2003
                                                                 -------------     --------------   --------------
<S>                                                              <C>               <C>              <C>
Net income (loss)                                                $       2,711     $       (1,280)  $          815
                                                                 -------------     --------------   --------------

Other comprehensive income (loss) before tax

   Net unrealized holding gains arising during                              55                 79              141
   the year
   Less: reclassification adjustment for (gains) losses
     included in net income (loss)                                         (15)               (48)              30
                                                                 -------------     --------------   --------------


   Other comprehensive income before tax                                    40                 31              171

Income tax related to items of other comprehensive income
     (loss)                                                                (19)               (14)             (79)
                                                                 -------------     --------------   --------------

Other comprehensive income, net of tax                                      21                 17               92
                                                                 -------------     --------------   --------------

Total comprehensive income (loss)                                $       2,732     $       (1,263)  $          907
                                                                 =============     ==============   ==============


</TABLE>






                 See notes to consolidated financial statements.



                                      F-6
<PAGE>
                            KSW, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

<TABLE>
<CAPTION>
                                                                                                    ACCUMULATED
                                                                   ADDITIONAL                          OTHER
                                            COMMON STOCK            PAID-IN        ACCUMULATED      COMPREHENSIVE
                                         SHARES       AMOUNT        CAPITAL          DEFICIT        INCOME (LOSS)        TOTAL
                                         ------       ------        -------          -------        -------------        -----
<S>                                   <C>           <C>          <C>             <C>               <C>               <C>
Balances, December 31, 2002            5,470,311      $   54        $ 9,729         $ (2,593)          $   (48)         $  7,142
Net income                                                 -              -              815                 -               815
Net unrealized gains on available
  for sale securities                          -           -              -                -                92                92
                                       ---------      ------        -------         --------           -------          --------
Balances, December 31, 2003            5,470,311          54          9,729           (1,778)               44             8,049

Net loss                                       -           -              -           (1,280)                -            (1,280)
Net unrealized gains on available
 for sale securities                           -           -              -                -                17                17
                                       ---------      ------        -------         --------           -------          --------
Balances, December 31, 2004            5,470,311          54          9,729           (3,058)               61             6,786

Net income                                     -           -              -            2,711                 -             2,711
Net unrealized gains on available
  for sale securities                          -           -              -                -                21                21
                                       ---------      ------        -------         --------           -------          --------
Balances, December 31, 2005            5,470,311      $   54        $ 9,729         $   (347)          $    82          $  9,518
                                       =========      ======        =======         ========           =======          ========

</TABLE>



                 See notes to consolidated financial statements.



                                      F-7
<PAGE>
                            KSW, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                 (IN THOUSANDS)

                ------------------------------------------------


<TABLE>
<CAPTION>
                                                                   2005                 2004               2003
                                                                  -------             --------           --------
<S>                                                               <C>                <C>                <C>
Reconciliation of net income (loss) to net cash provided
    by (used in) operating activities:

      Net income (loss)                                           $ 2,711             $(1,280)          $      815

    Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities:

         Depreciation and amortization                                 62                  67                   95
         Deferred income taxes                                        101                 (14)                 (79)
         Realized (gains) losses on sales of
           marketable securities                                      (15)                (48)                  30

    Changes in assets (increase) decrease:
             Accounts receivable                                   (5,639)              1,992                  471
             Retainage receivable                                    (776)                171                  587
             Costs and estimated earnings in excess of
                billings on uncompleted contracts                    (244)                386                  (53)
             Prepaid expenses and other receivables                    60                 216                   26
             Other                                                      -                   -                    8

    Changes in liabilities increase (decrease):
             Accounts payable                                       4,627                 (72)              (2,097)
             Retainage payable                                        555                (120)                (176)
             Accrued payroll and benefits                             322                (257)                 230
             Accrued expenses                                          58                 (34)                  11
             Billings in excess of costs and estimated
                earnings on uncompleted contracts                     503              (1,175)               1,175
                                                                  -------            --------             --------

                     Net cash provided by (used in)
                     operating activities                           2,325                (168)               1,043
                                                                  -------            --------             --------

                                   (continued)


                                      F-8
<PAGE>
                            KSW, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (CONCLUDED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                                 (IN THOUSANDS)

                          ----------------------------


                                                            2005                    2004                 2003
                                                        ------------            ------------         ------------

Cash flows from investing activities:
    Proceeds received on sales of marketable
       securities                                       $       153             $       676          $       506
    Purchases of marketable securities                         (163)                   (685)                (513)
    Purchase of property and equipment                          (76)                    (19)                  (9)
                                                        ------------            ------------         ------------

       Net cash used in investing activities                    (86)                    (28)                 (16)
                                                        ------------            ------------         ------------

Cash flows from financing activities:
   Repayment of loan payable                                      -                       -                 (387)
                                                        ------------            ------------         ------------


      Net cash used in financing activities                       -                       -                 (387)
                                                        ------------            ------------         ------------

      Net increase (decrease) in cash                         2,239                    (196)                 640

Cash, beginning of year                                       2,960                   3,156                2,516
                                                        ------------            ------------         ------------

Cash, end of year                                       $     5,199             $     2,960         $      3,156
                                                        ============            ============         ============

Supplemental disclosure of cash flow information:
  Cash paid during the year for:

        Interest                                        $        13             $        15         $         38

        Income taxes                                    $        51             $        36         $         49

</TABLE>
                 See notes to consolidated financial statements.


                                      F-9
<PAGE>
                            KSW, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (1)   PRINCIPLES OF CONSOLIDATION AND NATURE OF OPERATIONS

         The consolidated financial statements for the years ended December 31,
         2005, 2004 and 2003 include the accounts of KSW, Inc. and its
         wholly-owned subsidiary, KSW Mechanical Services, Inc., collectively
         "the Company." 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)      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, 2005 and 2004, there were no cash
                  equivalents.

         (B)      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.



                                      F-10
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D

         (B)      REVENUE AND COST RECOGNITION - CONT'D

                  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.

                  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.


         (C)      MARKETABLE SECURITIES

                  Marketable securities, consisting of managed security
                  accounts, are classified as "available-for-sale" securities
                  and are stated at fair market value. 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.



                                      F-11
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                   YEARS ENDED DECEMBER 31, 2005 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D

         (D)      CONTRACTS 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 establishes 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.

          (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, 2005,
                  amounts in excess of federally insured limits totaled
                  approximately $6,288.

                  Trade accounts and retainage receivables 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 $ 7,760 and $4,022 at December 31, 2005 and
                  2004, respectively.

         (F)      PROPERTY AND EQUIPMENT

                  Property and equipment is stated at cost. Depreciation is
                  computed over the estimated useful lives, generally five
                  years, of the assets 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.


                                      F-12
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D

          (G)     INCOME TAXES

                  The Company uses the asset and liability method of accounting
                  for income taxes recommended in SFAS No. 109, "Accounting for
                  Income Taxes." 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, allowance for doubtful accounts and net
                  operating loss carryforwards. A valuation allowance is
                  recorded for deferred tax assets when it is more likely than
                  not that some or all of the deferred tax assets will not be
                  realized through future operations.

         (H)      EARNINGS PER SHARE

                  Basic earnings per share includes no dilution and is computed
                  by dividing income available to common shareholders 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. For the years presented,
                  the effect of common stock equivalents has been excluded from
                  the diluted calculation since the effect would be
                  antidulitive.

         (I)      USE OF ESTIMATES

                  The preparation of 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 financial statements and the
                  reported amounts of revenues and expenses during the reporting
                  period. Actual results could differ from those estimates.

         (J)      STOCK OPTIONS

                  The Company uses the intrinsic value method of accounting for
                  employee stock options in accordance with APB No. 25 and as
                  permitted by Statement of Financial Accounting Standards No.
                  123, "Accounting for Stock-Based Compensation." Accordingly,
                  compensation cost for stock options is measured as the excess,



                                      F-13
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)
                                           ----------------------------

   (2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D


         (J)      STOCK OPTIONS - CONT'D

                  if any, of the quoted market price of the Company's stock at
                  the date of the grant over the amount the employee must pay
                  to acquire the stock. The compensation cost is recognized
                  over the vesting period of the options. In December 2002,
                  the FASB issued Statement of Financial Accounting Standards
                  No. 148, ("SFAS 148") Accounting for Stock-Based
                  Compensation - Transition and Disclosure. SFAS 148 amends
                  SFAS 123 to provide alternative methods of transition for an
                  entity that voluntarily changes to the fair value based
                  method of accounting for stock based employee compensation.
                  The adoption of this pronouncement did not have a material
                  effect on the financial statements as the Company continues
                  to apply the intrinsic value method in accordance with APB
                  No. 25.

                  In December 2004, FASB issued Statement No. 123-R, "Share
                  Based Payment" ("SFAS 123-R"), which is a revision of SFAS
                  123. SFAS 123-R superseded APB Opinion No. 25, "Accounting for
                  Stock Issued to Employees", and its related guidance.
                  Generally the approach to accounting for share based payments
                  in SFAS 123-R is similar to the approach described in SFAS
                  123; however, SFAS 123-R requires all share based payments to
                  employees, including grants of employee stock options, to be
                  recognized in the financial statements based on their fair
                  values (pro forma disclosure is no longer an alternative to
                  financial statement recognition). SFAS 123-R is effective for
                  financial statements at both interim and annual periods
                  beginning after January 1, 2006.

                  As permitted by SFAS 123, the Company currently accounts for
                  share-based payments to employees using APB No. 25's intrinsic
                  value method and, as such, generally no compensation cost is
                  recognized for employee stock options. Accordingly, the
                  adoption of SFAS 123-R's fair value method will have an impact
                  on future results of operations and financial position. SFAS
                  123-R also requires the benefit of tax deductions in excess of
                  recognized compensation cost to be reported as a financing
                  cash flow, rather than as an operating cash flow as required
                  under current literature. The Company cannot estimate what
                  those amounts will be in the future because they depend on,
                  among other things, when employees exercise stock options.


                                      F-14
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D

         (K)      FINANCIAL INSTRUMENTS

                  The carrying value of marketable securities approximates their
                  fair value as determined by market quotes. The carrying value
                  of receivables and payables and other amounts arising out of
                  normal contract activities, including retentions, which may be
                  settled beyond one year, approximates fair value.

         (L)      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

                  In December, 2004, FASB issued Statement No. 123-R, "Share
                  Based Payment" ("SFAS 123-R") which is a revision of SFAS 123.
                  SFAS 123-R superseded APB Opinion N. 25, "Accounting for Stock
                  Issued to Employees" and its related guidance. Generally the
                  approach to accounting for share based payments in SFAS 123-R
                  is similar to the approach described in SFAS 123; however,
                  SFAS 123-R requires all share based payments to employees,
                  including grants of employee stock options, be recognized in
                  the financial statements based on their fair values (pro forma
                  disclosure is no longer an alternative to financial statement
                  recognition). SFAS 123-R is effective for financial statements
                  at both interim and annual periods beginning after January 1,
                  2006. The adoption of SFAS 123-R is expected to have a
                  material effect on the Company's consolidated results of
                  operations and financial position.

                  FASB Interpretation No. 46 - Consolidation of Variable
                  Interest Entities ("FIN 46"). FIN 46 addresses the
                  consolidation by business enterprises of variable interest
                  entities, as defined in FIN 46, and is based on the concept
                  that companies that control another entity through interests,
                  other than voting interests, should consolidate the controlled
                  entity. The consolidation requirements apply immediately to
                  FIN 46 interests held in variable interest entities created
                  after January 31, 2003, and to interests held in variable
                  interest entities that existed prior to February 1, 2003 and
                  remain in existence as of July 1, 2003. The FASB subsequently
                  issued FIN 46R in December 2003 which modified certain
                  provisions of FIN 46. FIN 46R applied to the first reporting
                  period after March 15, 2004. The application of FIN 46 as
                  originally issued, and as revised by the issuance of FIN 46R,
                  did not have an impact on, or result in, additional disclosure
                  in the Company's consolidated results of operations or
                  financial position.


                                      F-15
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

    (2)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D


         (L)      IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - CONT'D

                  In May 2005, the FASB issued Statement No. 154, "Accounting
                  Changes and Error Corrections - A Replacement of APB No. 20
                  and FASB Statement No. 3" ("SFAS 154"). SFAS 154 provides
                  guidance on the accounting for and reporting of accounting
                  changes and error corrections, SFAS 154 and is effective for
                  fiscal years beginning after December 15, 2005. The adoption
                  of SFAS 154 is not expected to have a material effect on the
                  Company's consolidated results of operations or financial
                  position.

   (3)   MARKETABLE SECURITIES

         The cost and fair values of the marketable securities, classified as
         available-for-sale securities at December 31, 2005 and 2004, is as
         follows:

<TABLE>
<CAPTION>
                                                              Gross                Gross
                                                           Unrealized            Unrealized           Fair
                                                Cost      Holding Gains        Holding Losses         Value
                                                ----      -------------        --------------         -----
<S>                                           <C>         <C>                 <C>                   <C>
         December 31, 2005:
         Managed stock funds                   $ 621          $ 171                 $ (18)            $ 774
                                               =====          =====                 =====             =====

         December 31, 2004:
         Managed stock funds                   $ 597          $ 120                 $  (8)            $ 709
                                               =====          =====                 =====             =====
</TABLE>

          At December 31, 2005 and 2004, gross unrealized holding losses on
          available for sale securities were $18 and $8, respectively. At
          December 31, 2005 and 2004, gross unrealized holding gains on
          available for sale securities were $171 and $120, respectively. The
          change in net unrealized holding gains is $21 and $17 for the years
          ended December 31, 2005 and 2004, respectively. During the years ended
          December 31, 2005 and 2004, available for sale securities were sold
          for total proceeds of approximately $153 and $676, respectively. The
          gross realized gains on these sales totaled approximately $15 and $48
          for the years ended December 31, 2005 and 2004, respectively.


                                      F-16
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

     (4)  CONTRACTS RECEIVABLE

<TABLE>
<CAPTION>
                                                                    2005                 2004
                                                                    ----                 ----
<S>                                                              <C>                  <C>
          Accounts receivable:
              Billed
                     Contracts in progress                        $  7,779             $  2,564

                     Completed contracts                             3,990                1,554

               Unbilled                                                318                  293
                                                                  --------             --------

                                                                    12,087                4,411

          Less:  Allowances for doubtful collections                   200                  200
                                                                  --------             --------

                                                                  $ 11,887             $  4,211
                                                                  ========             ========

          Retainage receivable                                    $  2,764             $  1,988
                                                                  ========             ========

          Accounts receivable - long term                         $      -             $  2,037
                                                                  ========             ========
</TABLE>


          At December 31, 2005, retained contract receivables totaling $173 are
          not expected to be realized within one year.

   (5)   CONSTRUCTION CONTRACTS

         Information with respect to contracts in progress at December 31,
         2005 and 2004 is as follows:

<TABLE>
<CAPTION>
                                                                    2005                 2004
                                                                    ----                 ----
<S>                                                             <C>                  <C>
          Costs on uncompleted contracts                         $  25,385            $  11,080

          Estimated earnings thereon                                 3,472                1,539
                                                                 ---------            ---------

                                                                    28,857               12,619

          Less billings applicable thereto                          29,712               13,215
                                                                 ---------            ---------

                                                                 $    (855)           $    (596)
                                                                 =========            =========
</TABLE>

                                      F-17
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (5)   CONSTRUCTION CONTRACTS - CONT'D

         Included in the accompanying consolidated balance sheets under the
         following captions:

<TABLE>
<CAPTION>
                                                                                   2005                 2004
                                                                                   ----                 ----
<S>                                                                             <C>                  <C>
          Costs and estimated earnings in excess of billings on
          uncompleted contracts                                                  $    480             $    236

          Billings in excess of costs and estimated earnings on
          uncompleted contracts                                                    (1,335)                (832)
                                                                                 --------             --------

                                                                                 $   (855)            $   (596)
                                                                                 ========             ========

   (6)   PROPERTY AND EQUIPMENT

         Property and equipment at December 31, 2005 and 2004 consists of the
         following:
                                                                                   2005                 2004
                                                                                   ----                 ----

          Machinery and equipment                                                $    481             $    456
          Furniture and fixtures                                                      769                  718
          Leasehold improvements                                                      831                  831
                                                                                 --------             --------
                                                                                    2,081                2,005

          Less accumulated depreciation and amortization                            1,969                1,907
                                                                                 --------             --------
                                                                                 $    112             $     98
                                                                                 ========             ========
</TABLE>

         Depreciation and amortization expense relating to property and
         equipment was approximately $62, $67 and $95 for the years ended
         December 31, 2005, 2004 and 2003, respectively.


                                      F-18
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (7)   INCOME TAXES

         For the years ended December 31, 2005, 2004 and 2003, components of
         provision (benefit) for income taxes are as follows:

<TABLE>
<CAPTION>
                                                     2005               2004               2003
                                                     ----               ----               ----
<S>                                               <C>                <C>                 <C>
          Current
               Federal                             $      -           $      -           $      -
               State and local                           51                 36                 49
                                                   --------           --------           --------
                                                         51                 36                 49
                                                   --------           --------           --------
          Deferred
               Federal                                   60                 (8)               (48)
               State and local                           41                 (6)               (31)
                                                   --------           --------          ---------
                                                        101                (14)               (79)
                                                   --------           --------          ---------
                            Total                  $    152           $     22          $     (30)
                                                   ========           ========          =========
</TABLE>

         At December 31, 2002, the Company provided a valuation allowance
         against its net deferred tax assets of $1,045 based upon an uncertainty
         regarding the ultimate realization of these deferred tax assets in
         their entirety. The majority of the 2002 increase in the deferred tax
         asset before the valuation allowance is attributable to the write-off
         of goodwill as a result of implementation of SFAS-142. During the year
         ended December 31, 2003, the deferred tax valuation allowance decreased
         $406. During the year ended December 31, 2004, the deferred tax
         valuation allowance increased $581. At December 31, 2004, the
         outstanding deferred tax asset valuation allowance was $1,220. During
         the nine months ended September 30, 2005, the Company generated
         profits, which reduced this deferred tax valuation allowance by $461.
         At September 30, 2005, the Company reversed the outstanding deferred
         tax valuation allowance totaling $759 after the Company's management
         re-evaluated the likelihood that these assets could be used in their
         entirety and concluded that the valuation allowance was not required.

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

<TABLE>
<CAPTION>
                                                                       2005         2004         2003
                                                                       ----         ----         ----
<S>                                                                 <C>           <C>         <C>
          Computed tax at the federal statutory rate of 34%          $   974       $ (428)     $  267
          State and local taxes, net of federal benefit                  347         (152)         95
          Valuation allowance                                         (1,220)         581        (406)
          Other items, net                                                51           21          14
                                                                     -------       ------      ------
          Provision (benefit) for income taxes                       $   152       $   22      $  (30)
                                                                     =======       ======      ======
</TABLE>

                                      F-19
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (7)   INCOME TAXES - CONT'D

         The details of deferred tax assets and liabilities at December 31, 2005
and 2004 are as follows:

<TABLE>
<CAPTION>
                                                                        2005              2004
                                                                        ----              ----
<S>                                                                  <C>               <C>
          Deferred income tax assets:

                Net operating loss carry forwards                    $       362       $     1,497
                Amortization of goodwill                                     621               772
                Property and equipment                                       236               244
                Allowance for doubtful accounts                               92                92
                 Other tax carryforwards                                     109               136
                                                                     -----------       -----------
          Total deferred income tax assets                                 1,420             2,741
                                                                     -----------       -----------

          Deferred income tax liabilities:
                Unrealized gains on marketable securities                     71                52
                                                                     -----------       -----------
                                                                              71                52
                                                                     -----------       -----------
                Net deferred income tax assets before valuation
                allowance                                                  1,349             2,689
                Valuation allowance                                            -            (1,220)
                                                                     -----------       -----------
                Deferred income tax assets, net                      $     1,349       $     1,469
                                                                     ===========       ===========
</TABLE>

         At December 31, 2005, the Company has net operating loss carry forwards
         remaining of approximately $1,500, expiring through December 31, 2025.
         At December 31, 2005 and 2004, the net deferred tax asset is included
         in long-term assets in the accompanying balance sheets.

   (8)   ACCUMULATED OTHER COMPREHENSIVE INCOME

         At December 31, 2005 and 2004, accumulated other comprehensive income,
         which consists of net unrealized holding gains on available for sale
         securities, is as follows:

                                                          2005          2004
                                                          ----          ----

                  Beginning balance                       $ 61          $ 44
                  Current period change                     21            17
                                                          ----          ----
                  Ending balance                          $ 82          $ 61
                                                          ====          ====

                                      F-20
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

    (9)  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, 2005 as follows:

                                 YEAR ENDING
                                 DECEMBER 31,

                                     2006               $     191
                                     2007                     195
                                     2008                     199
                                     2009                     100
                                                        ---------
                                                        $     685
                                                        =========

                  Under the terms of the lease agreement, the Company is
                  obligated to pay monthly rental amounts of approximately $16.
                  The Company has exercised the first five-year option, that
                  extended the lease term through June 2004. The Company has
                  exercised two options, each for a period of one year for the
                  periods July 2004 through June 2005 and July 2005 through June
                  2006. The Company also exercised a three-year option that
                  extended the lease through 2009.

                  Rent expense for the years ended December 31, 2005, 2004 and
                  2003 amounted to approximately $185, $185, and $180,
                  respectively.

                                      F-21
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

    (9)  COMMITMENTS AND CONTINGENCIES - CONT'D

         (C)      OPERATING LEASE- RELATED PARTY


                  The Company had an operating lease with a related entity
                  controlled by its Chief Executive Officer for rental of
                  office, shop and warehouse space, which expired on December
                  31, 2002. The Company is renting this space on a
                  month-to-month basis at approximately $8.5 per month.

                  Rent expense, for the years ended December 31, 2005, 2004 and
                  2003, amounted to $103 to a related entity controlled by the
                  Chief Executive Officer in each year.

         (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

                    a.        Co-op City. On October 17, 2005, a wholly-owned
                              subsidiary the Company entered into a Stipulation
                              of Settlement settling a lawsuit commenced in
                              1999, entitled KSW Mechanical Services, Inc. v.
                              NAB Construction Corp., et. al. ("the Lawsuit"),
                              which had been pending in the Supreme Court of the
                              State of New York, County of Queens. The Company
                              sued the general contractor and its bonding
                              company on the Co-Op City Project to recover its
                              accounts receivable applicable to the base
                              contract of approximately $437, unpaid final
                              retainage billings of approximately $1,500, plus a
                              claim for unanticipated costs incurred through
                              1998 in the sum, as presented at trail, of $2,304.
                              The defendant asserted counterclaims, as presented
                              at trial, totaling $1,441, and a claim for $3,000
                              based on the argument that the Company's
                              mechanic's lien was willfully overstated.

                              The Lawsuit was tried for 47 days and further
                              trial proceedings were scheduled. Pursuant to the
                              Stipulation of Settlement, all claims and
                              counterclaims were discontinued and the Company
                              will receive cash payments totaling $2,900 with
                              $1,200 having been paid as of December 15, 2005,


                                      F-22
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

    (9)  COMMITMENTS AND CONTINGENCIES - CONT'D

         (E)      LEGAL - CONT'D

                              $850 payable on or before March 31, 2006, and $850
                              payable on or before September 30, 2006.

                              During the quarter ended December 31, 2005, the
                              Company recognized a pretax gain, after settlement
                              expenses, of approximately $888 related to the
                              settlement of the lawsuit.

                    b.        Other Proposals and Claims. During the ordinary
                              and routine course of its work on construction
                              projects, the Company may incur expenses for work
                              outside the scope of its contractual obligations,
                              for which the owner or general contractor agrees
                              that the Company will be entitled to additional
                              compensation, but where there is not yet an
                              agreement on price. The Company's financial
                              statements include the amounts the Company
                              believes it will ultimately receive on these
                              authorized proposals. Also during the course of
                              its work on construction projects, the Company may
                              incur expenses for work outside the scope of its
                              contractual obligations, for which no
                              acknowledgment of liability exists from the owner
                              or general contractor for such additional work.
                              These claims may include change proposals for
                              extra work or requests for an equitable adjustment
                              to the Company's contract price due to unforeseen
                              disruptions to its work. In accordance with
                              accounting principles generally accepted in the
                              United States of America for the construction
                              industry, until written acknowledgment of the
                              validity of the claims are received, 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-23
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (9)   COMMITMENTS AND CONTINGENCIES - CONT'D

          (F)     EMPLOYMENT AGREEMENT

                  The Company's Chief Executive Officer has a written employment
                  agreement, which expires on December 31, 2007. This agreement
                  provides a base annual compensation of $450 based on a
                  five-day work week, 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. In addition, for the period January 1,
                  2006 through December 31, 2007, he will receive a bonus equal
                  to 9.5% of the Company's annual operating profits before
                  taxes, which are in excess of $250.

         (G)      PURCHASE OBLIGATION

                  On March 28, 2005, the Company entered into an agreement with
                  a supplier of steel piping materials, whereby the Company has
                  committed to purchase minimum amounts of piping products used
                  in its normal operation for a period of 15 months commencing
                  January 1, 2005. The total minimum purchase obligation under
                  this agreement is $1,400. During the year ended December 31,
                  2005, the Company's total purchases under this agreement were
                  approximately $1,200.

   (10)  CREDIT FACILITY

                  On March 28, 2005, the Company obtained a line of credit
                  facility from Fleet National Bank, a Bank of America Company,
                  which provides borrowings for working capital purposes up to
                  $2,000. This facility expires on April 1, 2006, is secured by
                  the Company's assets and is guaranteed by the Company's
                  subsidiary, KSW Mechanical Services, Inc.

                  The amount of advances available was subject to certain
                  profitability and net worth requirements. The Company has met
                  all of the prerequisite profit and net worth requirements and
                  may borrow against the full amount of the line. There were no
                  borrowings against this facility during 2005.

                  Advances bear interest at the bank's prime lending rate plus
                  three-quarters of one percent per annum.


                                      F-24
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (11)  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 2008. 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 31%, 11%, 11%, 11% and 10% of its contract
                  revenue in 2005, 32%, 23% and 16% of its contract revenue in
                  2004, 43%, 27% and 13% of its contract revenue in 2003,
                  respectively.

   (12)  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
                  $70, $60 and $61 as a 25% matching contribution for the years
                  ended December 31, 2005, 2004 and 2003, respectively.


                                      F-25
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (12)  RETIREMENT PLANS - CONT'D

          (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 $ 1,207, $972 and $1,315 for the
                  years ended December 31, 2005, 2004 and 2003, respectively,
                  related to multi-employer pension plans for its union
                  employees.

    (13) STOCKHOLDERS' EQUITY

         (A)      STOCK OPTION PLAN

                  The Board of Directors of the Company adopted the 1995 Stock
                  Option Plan ("the Plan"). The Plan enabled the Company to make
                  incentive-based compensation awards to its employees,
                  officers, directors and consultants. A total of 750,000 shares
                  were authorized for issuance under the Plan. Options to
                  purchase 620,000 shares of common stock at $1.50 per share
                  were issued during December 1995 (of which 535,000 shares were
                  issued to officers and directors of the Company and its
                  subsidiary). The Plan requires that the exercise price of
                  options be set at not less than the fair market value of the
                  common stock on the date of grant pursuant to the requirements
                  of APB Opinion No. 25.

                  In the case of the initial options, the price of $1.50 was
                  determined to be in excess of the fair market value in light
                  of the contingencies facing the Company prior to completion of
                  this distribution. Options awarded vest one-third on each
                  anniversary of the date of grant and are fully vested three
                  years after grant and expire ten years from the date of the
                  grant. Additional credit towards vesting is given in the event
                  of death (six months) or disability (three months). Any shares
                  that are subject to an award, but are not used because the
                  terms and conditions of the award are not met, or any shares
                  that are used by participants to pay all or part of the


                                      F-26
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (13) STOCKHOLDERS' EQUITY - CONT'D

         (A)      STOCK OPTION PLAN - CONT'D

                  purchase price of any option may be used again for awards
                  under the Plan. The Plan provides that no shares may be
                  issued to officers or directors in excess of the 750,000
                  shares originally planned to be authorized unless the
                  Company's stockholders approve an increase in the number of
                  shares that may be used for that purpose. At the Company's
                  annual meeting held on June 27, 1996, the stockholders
                  approved an amendment to the plan to increase shares the
                  total number of shares of common stock available for future
                  options by 350,000 from 130,000 to 480,000 shares. Holders
                  of shares issued pursuant to the Plan are entitled to
                  registration of such shares annually, subject to
                  restrictions in any underwriting agreement. In 1999, the
                  Company issued a total of 55,000 stock options to three key
                  employees and to a Director. At December 31, 1999, there
                  were 641,667 granted options outstanding. In 2000, 1,667
                  options were exercised. No options were exercised under the
                  plan in 2003, 2002 and 2001. During 2001, 18,333 options
                  under the plan were canceled. There were no option
                  cancellations in 2004 and 2002. From 2001 through 2004, no
                  new options were granted. At December 31, 2002, there were
                  621,667 exercisable options outstanding. During 2003, 45,000
                  options under the plan were cancelled. At December 31, 2004
                  and 2003, there were 576,667 exercisable options outstanding
                  all of which had an exercise price of $1.50 per share.

                  On August 8, 2005, the Board of Directors extended the
                  expiration date of the 526,667 outstanding options to expire
                  in December 2010, instead of in December 2005, and to increase
                  the exercise price to $1.66. In addition, on August 8, 2005,
                  the Company issued 80,000 options, at $1.66 per share, to an
                  officer and three Directors. At December 31, 2005, the Company
                  had 50,000 outstanding options at an exercise price of $1.50
                  and 606,667 outstanding options at an exercise price of $1.66.

                  At December 31, 2005, the outstanding options totaling 656,667
                  included 606,667 options that are classified as nonqualified
                  stock options under the Internal Revenue Code of 1986, as
                  amended. When a nonqualified stock option is exercised, the
                  Company recognizes an expense for the difference between the
                  market value of the stock on the exercised date and the price
                  of the option.

                                      F-27
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (13) STOCKHOLDERS' EQUITY - CONT'D

         (A)      STOCK OPTION PLAN - CONT'D

Changes that occurred in options outstanding during 2005, 2004 and 2003 are
summarized below:

<TABLE>
<CAPTION>
                                                           2005                    2004                       2003
                                                          Fixed                   Fixed                      Fixed
                                             Option      Exercise     Option     Exercise     Option        Exercise
                                             Shares       Price       Shares      Price       Shares         Price
                                         -----------------------------------------------------------------------------
<S>                                       <C>           <C>         <C>         <C>         <C>            <C>
Outstanding at beginning of year             576,667      $1.50       576,667     $1.50       621,667        $ 1.50

Expired/ Canceled                               -                                             (45,000)

Granted - August 2005                         80,000       1.66          -                       -

Modified - August 2005                      (526,667)     (1.50)

Modified - August 2005                       526,667       1.66

Exercised                                       -                        -                       -
                                          -----------               ----------              ----------
Outstanding at end of year                   656,667      $1.65       576,667     $1.50       576,667       $ 1.50
                                          ===========               ==========              ==========

Exercisable at end of year                   576,667      $1.65       576,667     $1.50       576,667       $ 1.50

</TABLE>

         The Company has not recorded compensation expense related to the
         outstanding stock options because the exercise price of the shares was
         equal to the market price at the date of the grant. SFAS 123,
         "Accounting for Stock Based Compensation - Transition and Disclosure",
         requires pro forma net income disclosures as if the fair value based
         method defined in SFAS No.123 has been applied. The Company elected to
         continue to apply the provisions of APB Opinion No. 25 and to provide
         the pro forma disclosures required by SFAS No. 123 and amended by SFAS
         148. Had the Company determined compensation expense based on the fair
         value at the grant date for its stock options (using the Black-Scholes
         method) under SFAS No. 123, the Company's net income would have been
         adjusted to the pro forma amounts indicated below, in thousands except
         for per share data:


                                      F-28
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

  (13)    STOCKHOLDERS' EQUITY - CONT'D.

          (A)     STOCK OPTION PLAN - CONT'D

<TABLE>
<CAPTION>
                                                                      2005           2004         2003
                                                                      ----           ----         ----
<S>                                                                 <C>            <C>          <C>
                 Net income - as reported                           $  2,711       $(1,280)     $    815
                 Stock option compensation, net of tax                  (194)             -            -
                                                                    --------       --------     --------
                 Net income - pro forma                             $  2,517       $(1,280)     $    815
                                                                    ========       ========     ========

                 Basic net income per share:

                 As reported                                           $ .50         $(.24)        $ .15
                 Pro forma                                             $ .50         $(.24)        $ .15

                 Diluted net income per share:
                 As reported                                           $ .46         $(.24)        $ .15
                 Pro forma                                             $ .46         $(.24)        $ .15
</TABLE>

                  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 80,000 grants
                  in 2005: dividend yield of 0%; expected volatility of 64.12%;
                  risk-free interest rate of 4.69%; and expected lives of five
                  years. For the 526,667 options that were modified, an expected
                  life of 2.5 years was used.

                  The following table summarizes information about stock options
                  outstanding at December 31, 2005:

                                                                 Remaining
                      Exercise Price          Shares          Contractual Life
                      --------------          ------          ----------------

                           $1.50              50,000             3.8 years
                           $1.66             526,667             4.9 years
                           $1.66              80,000             9.6 years

         (B)      PREFERRED STOCK

                  The Company is authorized to issue 1,000,000 shares of
                  preferred stock. As of December 31, 2005, no shares of
                  preferred stock have been issued by the Company.


                                      F-29
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

   (14)  BACKLOG

         At December 31, 2005, the Company had a backlog of approximately
         $82,200. 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.

   (15)  RESTATEMENT

         The Company's management identified and determined that reported
         revenues and costs of revenue during the nine months ended September
         30, 2003 were overstated as a result of an accounting error
         attributable to the failure to eliminate intra-company accounts.
         Management has analyzed and corrected the Company's internal financial
         reporting system. The following is a summary by quarter of this
         restatement:

<TABLE>
<CAPTION>
                                                                              AS PREVIOUSLY            AS
          QUARTERLY DATA                                                         REPORTED           RESTATED
          --------------                                                         --------           --------
<S>                                                                          <C>                 <C>
          Three months ended March 31, 2003 (unaudited)
          Revenue                                                             $        8,078      $       6,141
          Costs of Revenues                                                            7,641              5,704
                                                                              --------------      -------------
          Gross Profit                                                        $          437      $         437
                                                                              ==============      =============
          Gross Profit %                                                                5.4%               7.1%
                                                                              ==============      =============

          Three months ended June 30, 2003 (unaudited)
          Revenue                                                             $       10,192      $       8,478
          Costs of Revenues                                                            9,610              7,896
                                                                              --------------      -------------
          Gross Profit                                                        $          582      $         582
                                                                              ==============      =============
          Gross Profit %                                                                5.7%               6.9%
                                                                              ==============      =============

          Three months ended September 30, 2003 (unaudited)
          Revenue                                                             $       11,000      $      10,171
          Costs of Revenues                                                            9,991              9,162
                                                                              --------------      -------------
          Gross Profit                                                        $        1,009       $      1,009
                                                                              ==============       =============
          Gross Profit %                                                                9.2%                9.9%
                                                                              ==============       =============
</TABLE>


                                      F-30
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

    (16)  SELECTED QUARTERLY DATA (UNAUDITED)

                  The following is unaudited selected quarterly data for the
                  years ended December 31, 2005 and 2004:

<TABLE>
<CAPTION>
                                                                      Year ended December 31, 2005
                                                                      ----------------------------
                                               First           Second            Third           Fourth
                                               quarter         Quarter          Quarter          quarter          Total
                                               -------         -------          -------          -------          -----
<S>                                         <C>              <C>               <C>              <C>            <C>
Revenues                                      $   9,876       $  11,552        $  14,849        $  17,101       $  53,378
Gross profit                                  $   1,143       $   1,128        $   1,516        $   2,694       $   6,481
Net income                                    $     155       $     298        $   1,262        $     996       $   2,711

Per share of common stock earnings
Basic                                         $     .03       $     .05        $     .23        $     .19       $     .50
Diluted                                       $     .03       $     .05        $     .23        $     .19       $     .50

Dividends                                     $       -       $       -        $       -        $       -       $       -

Stock prices:
High                                          $     .75       $    1.80        $    2.30        $    3.10
Low                                           $     .40       $     .66        $    1.60        $    2.06


                                                                      Year ended December 31, 2004
                                                                      ----------------------------
                                               First           Second            Third           Fourth
                                               quarter         Quarter          Quarter          quarter          Total
                                               -------         -------          -------          -------          -----

Revenues                                      $   6,431       $   6,407        $   6,566        $   6,877       $  26,281
Gross profit                                  $     507       $     905        $     192        $     538       $   2,142
Net income (loss)                             $    (644)      $     (51)       $    (596)       $      11       $  (1,280)

Per share of common stock earnings (losses):
Basic                                         $    (.12)      $    (.01)       $    (.11)       $       -       $    (.24)
Diluted                                       $    (.12)      $    (.01)       $    (.11)       $       -       $    (.24)

Dividends                                     $       -       $       -        $       -        $       -       $       -

Stock prices:
High                                          $    1.01       $    1.05        $     .80        $     .75
Low                                           $     .62       $     .65        $     .62        $     .40

</TABLE>

                                      F-31
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

(17)     SUBSEQUENT EVENTS

         (A)      EXERCISE OF OPTIONS

                  On February 13, 2006 and March 1, 2006, a former director and
                  executive of the Company exercised stock options totaling
                  150,000 and 20,000, respectively. These options were
                  nonqualified stock options, which the Company recognized an
                  expense for the difference between the market value of the
                  stock on the exercise date and the price of the option. This
                  transaction creates an increase in stockholders' equity for
                  the cash proceeds from the exercise of the options and the
                  increase in the deferred taxes asset associated with the
                  expense recorded. This deferred tax asset can be utilized to
                  offset profits the Company may have in the future. The
                  following is a summary of these transactions:

<TABLE>
<S>                                                                            <C>
                  February 13, 2006 Transaction
                  -----------------------------

                  Number of options exercised                                   150,000

                  Market value of options on exercise date                      $3.50 per share

                  Market value of options on exercisable date                   $  525

                  Exercise price of options                                     $1.66 per share

                  Proceeds from the exercise of options                         $  249

                  Per share difference between market value
                     of stock ($3.50) and the exercise price ($1.66)            $1.84 per share

                  Expense to be recorded related to this transaction            $  276
                  Tax benefit                                                     (127)
                                                                                ------
                  Expense, net of tax                                           $  149
                                                                                ======

                  Increase in stockholders' equity after transaction            $  376
                                                                                ======

                                      F-32
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

(17)     SUBSEQUENT EVENTS - CONT'D

         (A)      EXERCISE OF OPTIONS - CONT'D

                  March 1, 2006 Transaction
                  -------------------------

                  Number of options exercised                                   20,000

                  Market value of options on exercise date                      $3.85 per share

                  Market value of options on exercisable date                   $  77

                  Exercise price of options                                     $1.66 per share

                  Proceeds from the exercise of options                         $  33

                  Per share difference between market value
                  of stock ($3.85) and the exercise price ($1.66)               $2.19 per share

                  Expense to be recorded related to this transaction            $  44
                  Tax benefit                                                     (20)
                                                                                -----
                  Expense, net of tax                                           $  24
                                                                                =====

                  Increase in stockholders' equity after transaction            $  53
                                                                                =====
</TABLE>

         (B)      PERSONAL TRADING PLAN

                  On March 1, 2006, the Company's Chairman of the Board and
                  Chief Executive Officer, adopted a personal trading plan, in
                  compliance with Securities Exchange Act Rule 10b5-1, to
                  exercise stock options granted in 1995 under the Company's
                  Employee Stock Option Plan, and to sell a limited number of
                  shares over a period of two years. Under the terms of the
                  plan, he may exercise up to 200,000 options, and sell up to a
                  total of 400,000 shares.

                  This selling program, which will be managed by Morgan Stanley,
                  is based on the Securities and Exchange Commission's Rule
                  10b5-1, which protects company executives from possible claims
                  of insider trading by permitting executives to buy or sell a
                  predetermined amount of their company's shares, as set forth
                  in a planned acquisition or divestiture program which was
                  adopted when the insider did not possess any material
                  non-public information.


                                      F-33
<PAGE>
                            KSW, INC. AND SUBSIDIARY

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)

                  YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
                        (IN THOUSANDS, EXCEPT SHARE DATA)

                          ----------------------------

(17)     SUBSEQUENT EVENTS - CONT'D

          (C)     CREDIT FACILITY

                  On March 14, 2006, the Company extended the working capital
                  credit facility with Bank of America, N.A for a one year term
                  expiring April 2007.


























                                      F-34
<PAGE>
                                                                   SCHEDULE II

                                    KSW, INC.
                  SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
                                      000'S

<TABLE>
<CAPTION>
                                                      Balance at      Charged to       Charged to                      Balance
                                                      Beginning       costs and          other                          at end
                                                      of period        expenses         accounts       Deductions     of period
                                                      ---------        --------         --------       ----------     ---------
<S>                                                  <C>             <C>              <C>             <C>             <C>
Description
-----------

Year ended December 31, 2005
allowance for doubtful accounts and returns             $  200         $--------        $-------        $-------        $  200
                                                        ======         =========        ========        ========        ======


Year ended December 31, 2004
allowance for doubtful accounts and returns             $  200         $--------        $-------        $-------        $  200
                                                        ======         =========        ========        ========        ======

Year ended December 31, 2003
allowance for doubtful accounts and returns             $  200         $--------        $-------        $-------        $  200
                                                        ======         =========        ========        ========        ======





Year ended December 31, 2005
deferred income tax valuation                           $1,220          $-------        $-------          $1,220       $------
                                                        ======          ========        ========          ======       =======


Year ended December 31, 2004
deferred income tax valuation                             $639              $581        $-------        $-------       $ 1,220
                                                          ====              ====        ========        ========       =======

Year ended December 31, 2003
deferred income tax valuation                           $1,045           $------        $-------            $406          $639
                                                        ======           =======        ========            ====          ====

</TABLE>

<PAGE>
                                    KSW, INC.
                                INDEX TO EXHIBITS

Exhibit No.                         Description
-----------                         -----------

  3.1          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).

 10.7          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. 0-27290), filed with the
               Commission on March 30, 1999).

 10.8          Settlement and Release, dated June 11, 2002, by and between KSW,
               Inc., Floyd Warkol, Burton Reyer, Robert Brussel and the
               Helionetics Official Committee of Unsecured Creditors
               (incorporated herein by reference to Exhibit 10.1 to the
               Company's Current Report on Form 8-K (Commission File No.
               0-27290), filed with the Commission on July 12, 2002).

 10.9          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. 0-27290), filed with the
               Commission on November 24, 1995).

 10.10         WCMA Loan And Security Agreement, dated as of May 30, 2001,
               between KSW Mechanical Services, Inc. and Merrill Lynch Business
               Financial Services, Inc. (incorporated herein by reference to
               Exhibit 10.10 to the Company's Annual Report on Form 10-K for the
               fiscal year ended December 31, 2003 (Commission File No.
               0-27290), filed with the Commission on March 30, 2004).

 10.11         WCMA Line of Credit Extension letter, dated January 27, 2004 and
               WCMA Line of Credit Extension Agreements dated November 13, 2002
               and December 12, 2001, respectively, between KSW Mechanical
               Services, Inc., KSW, Inc., Energy Alternatives, Inc. and Merrill
               Lynch Business Financial Services, Inc. (incorporated herein by
               reference to Exhibit 10.11 to the Company's Annual Report on Form
               10-K for the fiscal year ended December 31, 2003 (Commission File
               No. 0-27290), filed with the Commission on March 30, 2004).

<PAGE>
 10.12         Agreement of Indemnity, dated May 24, 2001, by and among KSW,
               Inc., KSW Mechanical Services, Inc. and XL Specialty Insurance
               Company (incorporated herein by reference to Exhibit 10.12 to the
               Company's Annual Report on Form 10-K for the fiscal year ended
               December 31, 2003 (Commission File No. 0-27290), filed with the
               Commission on March 30, 2004)

 10.13         Employment Agreement, dated April 1, 2003, by and between Floyd
               Warkol and the Company (incorporated herein by reference to
               Exhibit 10.13 to the Company's Annual Report on Form 10-K for the
               fiscal year ended December 31, 2003 (Commission File No.
               0-27290), filed with the Commission on March 30, 2004)

 10.14         WCMA Line of Credit Extension Letter, dated June 30, 2004
               (incorporated herein by reference to Exhibit 10.14 to the
               Company's Quarterly Report on Form 10-Q for the fiscal quarter
               ended June 30, 2004 (Commission File No. 0-27290), filed with the
               Commission on August 16, 2004).

 10.15         Employment Agreement by and among KSW Mechanical Services, Inc.,
               the Company and Floyd Warkol, dated as of April 1, 2004
               (incorporated herein by reference to Exhibit 10.1 to the
               Company's Quarterly Report on Form 10-Q for the fiscal quarter
               ended September 30, 2004 (Commission File No. 0-27290), filed
               with the Commission on November 15, 2004).

 10.16         Amendatory Employment Agreement, dated November 10, 2004, by and
               between the Company, KSW Mechanical Services, Inc. and Floyd
               Warkol (incorporated herein by reference to Exhibit 10.1 to the
               Company's Current Report on Form 8-K (Commission File No.
               0-27290), filed with the Commission on November 16, 2004).


 10.17         Line of Credit Agreement letter, dated March 28, 2005, between
               KSW, Inc. and Fleet National Bank, a Bank of America Company
               together with forms of a Line of Credit Note, Rider to Line of
               Credit Note , a pledge security agreement and guaranty.

<PAGE>
 10.18         Compensation Arrangements with Certain Executive Officers.

 10.19         Compensation of Non-Employee Directors

 10.20         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.
               0-27290), filed with the Commission on September 12, 2005.

 10.21         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.

 11            Statement Regarding Computation of Net Earnings (Loss) Per Share.

 21.1          List of Subsidiaries

 23.1          Consent of Marden, Harrison & Kreuter, CPAs, P.C.

 31.1          Certification of Chief Executive Officer required by Rule
               13a-14(a).

 31.2          Certification of the Chief Financial Officer required by Rule
               13a-14(a).

 32.1          Certification of the Chief Executive Officer required by Rule
               13a-14(b) and 18 U.S.C. Section 1350.

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