UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





(Mark
One)


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


For
      the quarterly period ended June 30,
2008


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:


333-145588





Graphic





ORION
      MARINE GROUP, INC.


(Exact
      name of registrant as specified in its
charter)





DELAWARE
            26-0097459(State
      or other jurisdiction of
              Incorporation
      or organization)
            (I.R.S.
      Employer
              Identification
      Number)12550
      Fuqua
              Houston,
      Texas  77034
              (Address
      of principal executive offices)
              (Zip
      Code)(713)
      852-6500
              (Registrant’s
      telephone number, including area
code)








Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days


Yes
[√]  No [  ]





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as described in Rule 12b-2 of the
Exchange Act). (Check one)


Large
accelerated filer [  ]     Accelerated filer
[  ]   Non-accelerated filer
[√]   Smaller reporting
company  [  ]





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes[  ]  No
[√]





As of
August 1, 2008, 21,565,324 shares of the Registrant’s common stock, $0.01 par
value were outstanding.








ORION
MARINE GROUP, INC.


Quarterly
Report on Form 10-Q for the period ended June 30, 2008


INDEX








PART
      I
            FINANCIAL
      INFORMATIONItem
      1
            Financial
      Statements (Unaudited)
            PageCondensed Consolidated Balance Sheets at June 30,
      2008 and December 31, 2007
            3Condensed Consolidated Statements of Operations for the
      Three and Six Months Ended June 30, 2008 and 2007
            4Condensed Consolidated Statement of Stockholders’ Equity
      for the Six Months Ended June 30, 2008
            5Condensed Consolidated Statements of Cash Flows for the
      Six Months Ended June 30, 2008 and 2007
            6Notes to Condensed Consolidated Financial
      Statements
            7Item
      2
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            15Item
      3
            Quantitative and Qualitative Disclosures About Market
      Risk
            21Item
      4
            Controls and Procedures
            21PART
      II
            OTHER
      INFORMATIONItem1
            Legal Proceedings
            22Item
      1A
            Risk Factors
            22Item
      4
            Submission of Matters to a Vote of Security
      Holders
            22Item
      6
            Exhibits
            22SIGNATURES
            23Exhibits
            10.1          Changes to compensation of non-employee directors,
      effective for 2008.
              31.1Certification of the Chief Executive Officer
      Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002
              31.2Certification of the Chief Financial Officer
      Pursuant to Rules 13a-14 and 15d-14 of the Securities Exchange Act of
      1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002
              32.1  Certification of the Chief Executive Officer and
      the Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
    2002








-2-


Part I –
Financial Information


Orion
Marine Group, Inc. and Subsidiaries


Consolidated
BalanceSheets


(Unaudited)


(In
Thousands, Except Share and Per Share Information)





June
      30,
              2008
            
            
            December
      31,
              2007AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            14,500
            
            
            $
            12,584Accounts
      receivable:Trade,
      net of allowance of $50 and $500, respectively
            
            
            35,330
            
            
            
            30,832Retainage
            
            
            6,541
            
            
            
            7,620Other
            
            
            446
            
            
            
            1,345Inventory
            
            
            653
            
            
            
            646Deferred
      tax asset
            
            
            350
            
            
            
            551Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
            
            
            5,588
            
            
            
            7,676Asset
      held for sale
            
            
            1,969
            
            
            
            --Prepaid
      expenses and other
            
            
            6,589
            
            
            
            293Total
      current assets
            
            
            71,966
            
            
            
            61,547Property
      and equipment, net
            
            
            86,698
            
            
            
            68,746Goodwill
            
            
            12,096
            
            
            
            2,481Intangible
      assets, net of amortization
            
            
            5,922
            
            
            
            653Other
      assets
            
            
            93
            
            
            
            107Total
      assets
            
            $
            176,775
            
            
            $
            133,534Liabilities
      and Stockholders’ EquityCurrent
      liabilities:Current
      portion of long-term debt
            
            $
            2,625
            
            
            $
            --Accounts
      payable:Trade
            
            
            11,314
            
            
            
            11,139Retainage
            
            
            1,596
            
            
            
            678Accrued
      liabilities
            
            
            8,331
            
            
            
            7,546Taxes
      payable
            
            
            --
            
            
            
            2,324Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
            
            
            11,129
            
            
            
            7,408Total
      current liabilities
            
            
            34,995
            
            
            
            29,095Long-term
      debt, less current portion
            
            
            32,375
            
            
            
            --Other
      long-term liabilities
            
            
            448
            
            
            
            --Deferred
      income taxes
            
            
            12,719
            
            
            
            13,928Deferred
      revenue
            
            
            399
            
            
            
            427Total
      liabilities
            
            
            80,936
            
            
            
            43,450Commitments
      and contingenciesStockholders’
      equity:Common
      stock—$0.01 par value, 50,000,000 shares authorized,
      21,565,324
              shares
      issued and outstanding
            
            
            216
            
            
            
            216Additional
      paid-in capital
            
            
            54,844
            
            
            
            54,336Retained
      earnings
            
            
            40,779
            
            
            
            35,532Total
      stockholders’ equity
            
            
            95,839
            
            
            
            90,084Total
      liabilities and stockholders’ equity
            
            $
            176,775
            
            
            $
            133,534





See notes
to unaudited condensed consolidated financial statements


-3-





Orion
Marine Group, Inc. and Subsidiaries


Consolidated
Statements of Income


(Unaudited)


(In
Thousands, Except Share and Per Share Information)








Three months ended June 30,
            
            
            Six months ended June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007Contract
      revenues
            
            $
            67,070
            
            
            $
            51,479
            
            
            $
            119,661
            
            
            $
            89,772Costs
      of contract revenues
            
            
            57,240
            
            
            
            40,414
            
            
            
            99,759
            
            
            
            69,182Gross
      profit
            
            
            9,830
            
            
            
            11,065
            
            
            
            19,902
            
            
            
            20,590Selling,
      general and administrative expenses
            
            
            5,695
            
            
            
            7,220
            
            
            
            11,522
            
            
            
            11,3484,135
            
            
            
            3,845
            
            
            
            8,380
            
            
            
            9,242Interest
      (income) expenseInterest
      income
            
            
            (119
            )
            
            
            (294
            )
            
            
            (268
            )
            
            
            (560
            )Interest
      expense
            
            
            364
            
            
            
            393
            
            
            
            490
            
            
            
            839Interest
      (income) expense, net
            
            
            245
            
            
            
            99
            
            
            
            222
            
            
            
            279Income
      before income taxes
            
            
            3,890
            
            
            
            3,746
            
            
            
            8,158
            
            
            
            8,963Income
      tax expense
            
            
            1,489
            
            
            
            1,466
            
            
            
            2,911
            
            
            
            3,397Net
      income
            
            $
            2,401
            
            
            $
            2,280
            
            
            $
            5,247
            
            
            $
            5,566Net
      income
            
            $
            2,401
            
            
            $
            2,280
            
            
            $
            5,247
            
            
            $
            5,566Preferred
      dividends
            
            
            --
            
            
            
            259
            
            
            
            --
            
            
            
            777Earnings
      available to common stockholders
            
            $
            2,401
            
            
            $
            2,021
            
            
            $
            5,247
            
            
            $
            4,789Basic
      earnings per share
            
            $
            0.11
            
            
            $
            0.11
            
            
            $
            0.24
            
            
            $
            0.28Diluted
      earnings per share
            
            $
            0.11
            
            
            $
            0.11
            
            
            $
            0.24
            
            
            $
            0.27Shares
      used to compute earnings per share:Basic
            
            
            21,478,392
            
            
            
            18,676,587
            
            
            
            21,473,509
            
            
            
            17,254,063Diluted
            
            
            21,845,795
            
            
            
            19,241,989
            
            
            
            21,848,884
            
            
            
            17,990,674










































































See notes
to unaudited condensed consolidated financial statements






-4-


Orion
Marine Group, Inc. and Subsidiaries


Consolidated
Statement of Stockholders’ Equity


(Unaudited)


(In
Thousands, Except Share Information)





Common
            
            
            AdditionalStock
            
            
            Paid-In
            
            
            RetainedShares
            
            
            Amount
            
            
            Capital
            
            
            Earnings
            
            
            TotalBalance,
      January 1, 2008
            
            
            21,565,324
            
            
            $
            216
            
            
            $
            54,336
            
            
            $
            35,532
            
            
            $
            90,084Stock-based
      compensation
            
            
            —
            
            
            
            —
            
            
            
            508
            
            
            
            —
            
            
            
            508Net
      income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            5,247
            
            
            
            5,247Balance,
      June 30, 2008
            
            
            21,565,324
            
            
            $
            216
            
            
            $
            54,844
            
            
            $
            40,779
            
            
            $
            95,839


























































































































See notes
to unaudited condensed consolidated financial statements


-5-





Orion
Marine Group, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


(Unaudited)


(In
Thousands)








Six
      Months Ended June 30,2008
            
            
            2007Cash
      flows from operating activities:Net
      income
            
            $
            5,247
            
            
            $
            5,566Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            8,822
            
            
            
            6,228Deferred
      financing cost amortization
            
            
            121
            
            
            
            92Non-cash
      interest expense
            
            
            22
            
            
            
            43Bad
      debt expense
            
            
            50
            
            
            
            --Deferred
      income taxes
            
            
            (1,008
            )
            
            
            (1,026
            )Stock-based
      compensation
            
            
            508
            
            
            
            504Gain
      on sale of property and equipment
            
            
            (115
            )
            
            
            (408
            )Change
      in operating assets and liabilities:Accounts
      receivable
            
            
            (1,954
            )
            
            
            4,383Inventory
            
            
            (7
            )
            
            
            (19
            )Prepaid
      expenses and other
            
            
            (3,208
            )
            
            
            (731
            )Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
            
            
            3,318
            
            
            
            (5,076
            )Accounts
      payable
            
            
            1,093
            
            
            
            (2,024
            )Accrued
      liabilities
            
            
            1,207
            
            
            
            (2,791
            )Income
      tax payable
            
            
            (5,427
            )
            
            
            975Billings
      in excess of costs and estimated earnings on uncompleted
      contracts
            
            
            3,539
            
            
            
            (3,448
            )Deferred
      revenue
            
            
            (28
            )
            
            
            (27
            )Net
      cash provided by operating activities
            
            
            12,180
            
            
            
            2,241Cash
      flows from investing activities:Acquisition
      of assets of Subaqueous Services, Inc.
            
            
            (36,713
            )
            
            
            --Proceeds
      from sale of property and equipment
            
            
            158
            
            
            
            1,534Purchase
      of property and equipment
            
            
            (8,629
            )
            
            
            (3,941
            )Net
      cash used in investing activities
            
            
            (45,184
            )
            
            
            (2,407
            )Cash
      flows from financing activities:Payments
      on long-term debt
            
            
            --
            
            
            
            (21,905
            )Borrowing
      on credit facility
            
            
            35,000
            
            
            
            —Exercise
      of stock options
            
            
            --
            
            
            
            48Payment
      of accumulated preferred dividends and liquidation of preferred
      stock
            
            
            --
            
            
            
            (40,431
            )Proceeds
      from the sale of common stockstock
            
            
            --
            
            
            
            261,506Redemption
      of common stock
            
            
            --
            
            
            
            (201,555
            )Increase
      in loan costs
            
            
            (80
            )
            
            
            (123
            )Net
      cash provided by (used in) financing activities
            
            
            34,920
            
            
            
            (2,460
            )Net
      change in cash and cash equivalents
            
            
            1,916
            
            
            
            (2,626
            )Cash
      and cash equivalents at beginning of period
            
            
            12,584
            
            
            
            18,561Cash
      and cash equivalents at end of period
            
            $
            14,500
            
            
            $
            15,935Supplemental
      disclosures of cash flow information:  cash paid during the
      period for:Interest
            
            $
            247
            
            
            $
            820Taxes
            
            $
            9,078
            
            
            $
            3,864




















See notes
to unaudited condensed consolidated financial statements


-6-


Orion
Marine Group, Inc. and Subsidiaries





Notesto Condensed Consolidated Financial Statements


Three
and Six Months Ended June 30, 2008


(Unaudited)


(Tabular
Amounts in thousands, Except for Share and per Share Amounts)





1.  Description
of Business and Basis of Presentation





Description
of Business





Orion
Marine Group, Inc., and its wholly-owned subsidiaries (hereafter collectively
referred to as “Orion” or the “Company”) provide a broad range of marine
construction services on, over and under the water along the Gulf Coast, the
Atlantic Seaboard and the Caribbean Basin.  Heavy civil marine
projects include marine transportation facilities, bridges and causeways, marine
pipelines, mechanical and hydraulic dredging, and specialty projects. The
Company is headquartered in Houston, Texas.





Basis
of Presentation





The
accompanying condensed consolidated financial statements and financial
information included herein have been prepared pursuant to the interim period
reporting requirements of Form 10-Q.  Consequently, certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States have been condensed or omitted.  Readers of this report
should also read our consolidated financial statements and the notes thereto
included in our Annual Report on Form 10-K for the fiscal year ended December
31, 2007 (“2007 Form 10-K”) as well as Item 7 – Management’s Discussion and Analysis
of Financial Condition and Results of Operationsalso included in our
2007 Form 10-K.




In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments considered necessary for a fair and
comparable statement of the Company’s financial position, results of operations
and cash flows for the periods presented.  Such adjustments are of a
normal recurring nature.  Interim results of operations for the three
and six months ended June 30, 2008, are not necessarily indicative of the
results that may be expected for the year ending December 31,
2008.




Reclassifications




Certain
items on the prior period balance sheet related to intangible assets have been
reclassified to conform to current year presentation.





2.   Summary
of Significant Accounting Principles





The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States 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.   Management’s estimates, judgments
and assumptions are continually evaluated based on available information and
experience; however, actual amounts could differ from those
estimates.  The Company’s significant accounting policies are more
fully described in Note 2 of the Notes to Consolidated Financial Statements in
the 2007 Form 10-K.





On an
ongoing basis, the Company evaluates the significant accounting policies used to
prepare its condensed consolidated financial statements, including, but not
limited to, those related to:





·
            Revenue
      recognition


·
            Accounts
      receivable


·
            Income
      taxes


·
            Self-insurance
      and


·
            Stock
      based compensation




-7-


Revenue
Recognition





The
Company records revenue on construction contracts for financial statement
purposes on the percentage-of-completion method, measured by the percentage of
contract costs incurred to date to total estimated costs for each contract. The
Company follows the guidance of American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 81-1, Accounting for Performance of
Construction—Type and Certain Production—Type Contracts,for its accounting policy relating to the use of the
percentage-of-completion method, estimated costs and claim recognition for
construction contracts. Changes in job performance, job conditions and estimated
profitability, including those arising from final contract settlements, may
result in revisions to costs and revenues and are recognized in the period in
which the revisions are determined. Provisions for estimated losses on
uncompleted contracts are made in the period in which such losses are
determined.





The
current asset “costs and estimated earnings in excess of billings on uncompleted
contracts” represents revenues recognized in excess of amounts billed, which
management believes will be billed and collected within one year of the
completion of the contract. The liability “billings in excess of costs and
estimated earnings on uncompleted contracts” represents billings in excess of
revenues recognized.





Risk
Concentrations





Financial
instruments that potentially subject the Company to concentrations of credit
risk principally consist of cash and cash equivalents and accounts
receivable.





The
Company’s primary customers are governmental agencies in the United States. The
Company depends on its ability to continue to obtain federal, state and local
governmental contracts, and indirectly, on the amount of funding available to
these agencies for new and current governmental projects. Therefore, the
Company’s operations can be influenced by the level and timing of government
funding.





At June
30, 2008 and December 31, 2007, no single customer accounted for more than 10%
of total receivables.  In the three and six months ended June 30,
2008, no single customer generated revenue in excess of 10% of total
revenues.  In the three and six months ended June 30, 2007, two
customers generated revenues in excess of 10% of total revenues, representing
24.7% and 31.3% of revenues in each respective period.





Accounts
Receivable





Accounts
receivable are stated at the historical carrying value, less write-offs and
allowances for doubtful accounts. The Company writes off uncollectible accounts
receivable against the allowance for doubtful accounts if it is determined that
the amounts will not be collected or if a settlement is reached for an amount
that is less than the carrying value. In the second quarter of 2008, the Company
recovered a receivable it had previously partially reserved as a doubtful
account.  As of June 30, 2008 and December 31, 2007, the Company
had an allowance for doubtful accounts of $50,000 and $500,000,
respectively.





Balances
billed to customers but not paid pursuant to retainage provisions in
construction contracts generally become payable upon contract completion and
acceptance by the owner.  Retention at June 30, 2008 totaled $6.5
million, of which $1.6 million is expected to be collected beyond
2008.  Retention at December 31, 2007 totaled $7.6
million.





Income
Taxes





The
Company records income taxes based upon Statement of Financial Accounting
Standards (“SFAS”) No. 109, Accounting for Income Taxes, which requires
the recognition of income tax expense for the amount of taxes payable or
refundable for the current period and for deferred tax liabilities and assets
for the future tax consequences of events that have been recognized in an
entity’s financial statements or tax returns.   The Company
accounts for any uncertain tax positions in accordance with the provisions of
Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48).





-8-





Self-Insurance


The
Company maintains insurance coverage for its business and operations. 
Insurance related to property, equipment, automobile, general liability, and a
portion of workers' compensation is provided through traditional
policies, subject to a deductible.  A portion of the Company's
workers’ compensation exposure is covered through a mutual association, which is
subject to supplemental calls.




Separately,
the Company’s employee health care is provided through a trust, administered by
a third party.  The Company funds the trust based on current
claims.  The administrator has purchased appropriate stop-loss
coverage.  Losses on these policies up to the deductible amounts are
accrued based upon known claims incurred and an estimate of claims incurred but
not reported.  The accruals are derived from actuarial studies, known
facts, historical trends and industry averages utilizing the assistance of an
actuary to determine the best estimate of the ultimate expected
loss.




Stock-Based
Compensation





The
Company recognizes compensation expense for equity awards based on the
provisions of SFAS No. 123(R), Share-Based
Payment.  Compensation expense is recognized based on the fair
value of these awards at the date of grant.  The computed fair value
of these awards is recognized as a non-cash cost over the period the employee
provides services, which is typically the vesting period of the
award.





Compensation
is recognized only for share-based payments expected to vest.  The
Company estimates forfeitures at the date of grant based on historical
experience and future expectations.





Recently
Issued Accounting Pronouncements





SFAS 157. As of January 1,
2008, the Company adopted SFAS 157, “Fair Value Measurements,” SFAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. It clarifies the extent to which fair value is used to measure
recognized assets and liabilities, the inputs used to develop the measurements,
and the effect of certain measurements on earnings for the period. We have
determined that the adoption of SFAS 157 did not have a material impact on our
consolidated financial position, results of operations or cash flows and do not
believe any of the Company’s assets or liabilities are subject to the quarterly
recurring measurement provisions of SFAS 157.  The disclosure
requirements for assets and liabilities assessed on a non-recurring basis have
been deferred by FASB Staff Position 157-2 “Effective Date of FASB Statement No.
157” until fiscal years beginning after November 15, 2008.





SFAS 141R. In December
2007, the FASB issued SFAS 141(revised 2007), “Business Combinations,” to
increase the relevance, representational faithfulness, and comparability of the
information a reporting entity provides in its financial reports about a
business combination and its effects. SFAS 141R replaces SFAS 141, “Business
Combinations” but, retains the fundamental requirements of SFAS 141 that the
acquisition method of accounting be used and an acquirer be identified for all
business combinations. SFAS 141R expands the definition of a business and of a
business combination and establishes how the acquirer is to: (1) recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the acquiree; (2)
recognize and measure the goodwill acquired in the business combination or a
gain from a bargain purchase; and (3) determine what information to disclose to
enable users of the financial statements to evaluate the nature and financial
effects of the business combination. SFAS 141R is applicable to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, and is to
be applied prospectively. Early adoption is prohibited. SFAS 141R will impact
the Company if we elect to enter into a business combination subsequent to
December 31, 2008.





FSP 142-3.In
April 2008, the FASB issued FASB Staff Position 142-3, “Determination of the
Useful Life of Intangible Assets”.  FSP 142-3 amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS 142
“Goodwill and Other Intangible Assets”.  FSP 142-3 is effective for
financial statements issued for fiscal years beginning on or after December 15,
2008.  We are currently evaluating the impact of FSP 142-3 on our
consolidated financial statements.





In June
2008, the Financial Accounting Standard Board (FASB) issued FSP EITF
03-6-1,Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities (FSP EITF 03-6-1). FSP EITF 03-6-1 clarified that all
outstanding unvested share-based payment awards that contain rights to
nonforfeitable dividends participate in undistributed earnings with common
shareholders. Awards of this nature are considered participating securities and
the two-class method of computing basic and diluted earnings per share must be
applied. FSP EITF 03-6-1 is effective for fiscal years beginning after December
15, 2008. The Company is currently assessing the impact of FSP EITF 03-6-1 and
anticipates any impact to basic earnings per share will be
immaterial.





-9-


3.   Acquisition
of the Assets of Subaqueous Services, Inc.





On
February 29, 2008, Subaqueous Services, LLC (“SSLLC”), a newly-formed,
wholly-owned subsidiary of the Company concurrently entered into an agreement to
purchase and closed the purchase of substantially all of the assets (with the
exception of working capital) and related business (principally consisting of
project contracts) of Orlando, Florida-based Subaqueous Services, Inc., a
Florida corporation (“SSI”) for $35 million in
cash.





In
addition, SSLLC (i) paid SSI approximately $1.7 million for net under-billings
and retained funds held under certain project contracts and for transition
support services to be provided by SSI through September, 2008; and (ii) entered
a three-year Consulting Agreement with the sole shareholder of SSI, terminable
on thirty (30) days prior written notice by the parties thereto, for $150,000
per year payable monthly.   On July 31, 2008, SSLLC and the
Company provided the sole shareholder of SSI a notice of termination of the
Consulting Agreement.





The
Company funded the acquisition using its acquisition line of $25 million and a
draw on its accordion facility of $10 million, and cash on hand for the other
payments referenced above. SSLLC operates the acquired assets under the name
“Subaqueous Services, LLC,” and SSLLC is based in Jacksonville, Florida. In that
regard, SSLLC entered a lease agreement with Hill Street, LLC effective February
29, 2008, for premises and facilities constituting those formerly occupied and
used by SSI for its Jacksonville operations.





SSI was a
specialty dredging services provider that focused on shallow water dredging
projects in Florida and along the Atlantic Seaboard utilizing both mechanical
and hydraulic cutter suction pipeline dredging, with a wide variety of customers
both in the public and private sectors.  The assets acquired consist
primarily of marine construction equipment, including several
dredges.  The Company also purchased construction contracts in
progress and the right to the name “Subaqueous Services” and derivatives
thereof.  In addition, SSLLC hired certain senior managers of SSI and
substantially all of SSI’s field personnel.





Prior to
this acquisition, no relationship outside the ordinary course of business
existed between SSI and the Company or SSI and SSLLC.





The
Company accounted for the purchase of the assets of SSI as a business
combination.  The following represents the Company’s allocation of the
purchase price to the assets acquired:





Property
      and equipment
            
            $
            18,500Intangible
      assets
            
            
            6,900Goodwill
            
            
            9,600$
            35,000





The
Company’s condensed consolidated financial statements at June 30, 2008 include
results of SSLLC for the period since the acquisition.  Pro-forma
information is presented below as if the asset purchase had occurred on January
1 of each reporting period:


Three months ended June 30,
            
            
            Six months ended June 30,2008(Actual)
            
            
            2007
            
            
            2008
            
            
            2007Revenue
            
            $
            67,070
            
            
            $
            63,742
            
            
            $
            122,439
            
            
            $
            114,298Income
      before taxes
            
            $
            3,890
            
            
            $
            3,894
            
            
            $
            7,384
            
            
            $
            9,260Net
      income
            
            $
            2,401
            
            
            $
            2,337
            
            
            $
            4,769
            
            
            $
            5,716Earnings
      per share:Basic
            
            $
            0.11
            
            
            $
            0.11
            
            
            $
            0.22
            
            
            $
            0.28Diluted
            
            $
            0.11
            
            
            $
            0.11
            
            
            $
            0.22
            
            
            $
            0.28





-10-


4.  Contracts
in Progress





Contracts
in progress are as follows at June 30, 2008 and December 31, 2007:


June 30,
              2008
            
            
            December
      31,
              2007Costs
      incurred on uncompleted contracts
            
            $
            208,359
            
            
            $
            379,268Estimated
      earnings
            
            
            54,169
            
            
            
            131,437262,528
            
            
            
            510,705Less:
      Billings to date
            
            
            (268,069
            )
            
            
            (510,437
            )$
            (5,541
            )
            
            $
            268Included
      in the accompanying consolidated balance sheet under the following
      captions:Costs
      and estimated earnings in excess of billings on uncompleted
      contracts
            
            $
            5,588
            
            
            $
            7,676Billings
      in excess of costs and estimated earnings on uncompleted
      contract
            
            
            (11,129
            )
            
            
            (7,408
            )$
            (5,541
            )
            
            $
            268





Contract
costs include all direct costs, such as materials and labor, and those indirect
costs related to contract performance such as payroll taxes and insurance.
Provisions for estimated losses on uncompleted contracts are made in the period
in which such losses are determined. Changes in job performance, job conditions
and estimated profitability may result in revisions to costs and income and are
recognized in the period in which the revisions are determined. An amount equal
to contract costs attributable to claims is included in revenues when
realization is probable and the amount can be reliably estimated.





5.  Property
and Equipment





The
following is a summary of property and equipment at June 30, 2008 and December
31, 2007:





June 30,
              2008
            
            
            December
      31,
              2007Automobiles
      and trucks
            
            $
            1,719
            
            
            $
            1,807Building
      and improvements
            
            
            12,577
            
            
            
            12,363Construction
      equipment
            
            
            85,400
            
            
            
            74,736Dredges
      and dredging equipment
            
            
            38,011
            
            
            
            24,189Office
      equipment
            
            
            936
            
            
            
            891138,643
            
            
            
            113,986Less:
      accumulated depreciation
            
            
            (62,791
            )
            
            
            (56,223
            )Net
      book value of depreciable assets
            
            
            75,852
            
            
            
            57,763Construction
      in progress
            
            
            5,624
            
            
            
            5,761Land
            
            
            5,222
            
            
            
            5,222$
            86,698
            
            
            $
            68,746





For the
three months ended June 30, 2008 and 2007, depreciation expense was
$3.9 million and $3.1 million, respectively and for the six months ended
June 30, 2008, depreciation expense was $7.3 million and $6.2 million,
respectively.  The assets of the Company are pledged as collateral for
debt obligations in the amount of $35.0 million and $0 million at June
30, 2008 and December 31, 2007, respectively. The debt obligations mature in
September 2010.





In
January 2008, management committed to a plan to sell a vessel which it had
purchased in 2006 and was no longer considered integral to the Company’s
fleet.  The asset is recorded as a current asset held for sale on the
Company’s June 30, 2008 balance sheet.  No depreciation has been taken
on the vessel in 2008.  The Company sold the vessel on August 1, 2008
for approximately $2.8 million.





6.  Debt
and Line of Credit





The
Company has maintained a credit agreement with several participating banks since
October 2004.  In July 2007, the Company restated its credit agreement
with its existing lenders.  Debt under the new credit facility
included the balance of the old credit facility of $3.1 million, which was paid
in full in December 2007.  In addition, the terms of the credit
facility provided for the Company to borrow up to $25 million under an
acquisition term loan facility and up to $8.5 million under a revolving line of
credit.  At the discretion of the Company’s lenders, either the
acquisition term loan facility or the revolving line of credit may be increased
by $25 million, of which $10 million was used in the purchase of the assets of
SSI.





-11-


The
revolving line of credit is subject to a borrowing base and availability on the
revolving line of credit is reduced by any outstanding letters of
credit.  At June 30, 2008, the Company had outstanding letters of
credit of $692,000, thus reducing the balance available to the Company on the
revolving line of credit to approximately $7.8 million.  The Company
is subject to a monthly commitment fee on the unused portion of the revolving
line of credit at a rate of 0.20% of the unused balance.  As of August
1, 2008, no amounts had been drawn under the revolving line of
credit.





As
referenced in Note 3 above, the Company borrowed $35 million to fund the
purchase of the assets of SSI in February 2008 and amended its credit facility
to reflect the borrowing.  Payments of interest are due quarterly
beginning June 30, 2008.  Payments of principal commence December 31,
2008 in seven equal quarterly installments based on 2.5% of the balance
outstanding on September 30, 2008, with the remaining balance due September 30,
2010.  All provisions under the credit facility mature on September
30, 2010.





Interest
on the Company’s borrowings is based on the prime rate or LIBOR rate then in
effect, at the Company’s discretion.  For each prime rate loan drawn
under the credit facility, interest is due quarterly at the then prime rate
minus a margin that is adjusted quarterly based on total leverage ratios, as
applicable.  For each LIBOR loan, interest is due at the end of each
interest period at a rate of the then LIBOR rate for such period plus the LIBOR
margin based on total leverage ratios, as applicable.  At June 30,
2008, interest on the Company’s outstanding loans was based on
prime.  The prime interest rate at June 30, 2008 was
4.0%.





The
credit facility requires the Company to maintain certain financial ratios,
including net worth, fixed charge and leverage ratios, and places other
restrictions on the Company as to its ability to incur additional debt, pay
dividends, advance loans and other actions.  The credit facility is
secured by the bank accounts, accounts receivable, inventory, equipment and
other assets of the Company and its subsidiaries.  As of June 30,
2008, the Company was in compliance with all debt covenants.





7.  Income
Taxes





The
Company’s effective tax rate is based on expected income, statutory tax rates
and tax planning opportunities available to it.  For interim financial
reporting, the Company estimates its annual tax rate based on projected taxable
income for the full year and records a quarterly tax provision in accordance
with the anticipated annual rate.  The effective rate for the three
months ended June 30, 2008 was 38.3% and differed from the Company’s statutory
rate primarily due to state income taxes, non-deductible stock based
compensation expense associated with employee incentive stock options and other
permanent differences. In the first quarter of 2008, the Company revised its
estimate of the impact of certain permanent deductions, among other factors,
available to it on its federal tax return, which reduced its effective rate for
the period, thereby reducing the effective rate for the six months ended June
30, 2008 to 35.7%.  The Company’s effective tax rate of 39.1% and
37.9% for the three and six months ended June 30, 2007, respectively, differed
from the statutory rate principally due to state income taxes.





Current
            
            
            Deferred
            
            
            TotalThree
      months ended June 30, 2008:U.S. Federal
            
            $
            1,257
            
            
            $
            (223
            )
            
            $
            1,034State
      and local
            
            
            437
            
            
            
            18
            
            
            
            455$
            1,694
            
            
            $
            (205
            )
            
            $
            1,489Three
      months ended June 30, 2007:U.S. Federal
            
            $
            1,865
            
            
            $
            (591
            )
            
            $
            1,274State
      and local
            
            
            192
            
            
            
            —
            
            
            
            192$
            2,057
            
            
            $
            (591
            )
            
            $
            1,466





Current
            
            
            Deferred
            
            
            TotalSix
      months ended June 30, 2008:U.S. Federal
            
            $
            3,263
            
            
            $
            (1,091
            )
            
            $
            2,172State
      and local
            
            
            656
            
            
            
            83
            
            
            
            739$
            3,919
            
            
            $
            (1,008
            )
            
            $
            2,911Six
      months ended June 30, 2007:U.S. Federal
            
            $
            4,072
            
            
            $
            (1,026
            )
            
            $
            3,046State
      and local
            
            
            351
            
            
            
            —
            
            
            
            351$
            4,423
            
            
            $
            (1,026
            )
            
            $
            3,397





The
Company does not believe that its uncertain tax positions will significantly
change due to the settlement and expiration of statutes of limitations prior to
June 30, 2009.





-12-


8.  Earnings
Per Share





Basic
earnings per share are based on the weighted average number of common shares
outstanding during each period. Diluted earnings per share is based on the
weighted average number of common shares outstanding and the effect of all
dilutive common stock equivalents during each period. For the three and six
months ended June 30, 2008, 576,840 common stock equivalents were not included
in the diluted earnings per share calculation, as the effect of these shares
would have been anti-dilutive.  No common stock equivalents were
considered anti-dilutive at June 30, 2007.





The
following table reconciles the denominators used in the computations of both
basic and diluted earnings per share:





Three
      months ended June 302008
            
            
            2007Basic:Weighted
      average shares outstanding
            
            
            21,565,324
            
            
            
            19,362,982Less
      weighted average non-vested restricted stock
            
            
            86,932
            
            
            
            686,395Total
      basic weighted average shares outstanding
            
            
            21,478,392
            
            
            
            18,676,587Diluted:Total
      basic weighted average shares outstanding
            
            
            21,478,392
            
            
            
            18,676,587Effect
      of dilutive securities:Common
      stock options
            
            
            280,648
            
            
            
            328,430Restricted
      stock
            
            
            86,755
            
            
            
            236,972Total
      weighted average shares outstanding assuming dilution
            
            
            21,845,795
            
            
            
            19,241,989





Six
      months ended June 302008
            
            
            2007Basic:Weighted
      average shares outstanding
            
            
            21,565,324
            
            
            
            17,606,398Less
      weighted average non-vested restricted stock
            
            
            91,815
            
            
            
            352,335Total
      basic weighted average shares outstanding
            
            
            21,473,509
            
            
            
            17,254,063Diluted:Total
      basic weighted average shares outstanding
            
            
            21,473,509
            
            
            
            17,254,063Effect
      of dilutive securities:Common
      stock options
            
            
            278,573
            
            
            
            329,143Restricted
      stock
            
            
            96,802
            
            
            
            407,468Total
      weighted average shares outstanding assuming dilution
            
            
            21,848,884
            
            
            
            17,990,674





9.  Stock-Based
Compensation





The
Compensation Committee of the Company’s Board of Directors is responsible for
the administration of the Company’s two stock incentive plans (the "LTIP" and
the "2005 Plan").  In general, the plans provide for grants of
restricted stock and stock options to be issued with a per-share price equal to
the fair market value of a share of common stock on the date of
grant.  Option terms are specified at each grant date, but generally
are 10 years.  Options generally vest over a three to five year
period.  Total shares of common stock that may be delivered under the
LTIP and the 2005 Plan may not exceed 2,943,946.








In March
2008, the Company granted options to purchase 15,000 shares of common
stock.  The Company uses the Black-Scholes option pricing model to
estimate the fair value of stock-based awards.  The awards granted in
March 2008 used the following assumptions:





Expected
      life of options
            6
      yearsExpected
      volatility
            36.7%Risk-free
      interest rate
            2.92%Dividend
      yield
            0.0%Grant
      date fair value
            $5.35





For the
three months ended June 30, 2008 and 2007, compensation expense related to stock
options outstanding for the periods was $254,000 and $128,000, respectively, and
for the six months ended June 30, 2008 and 2007 was $508,000 and $147,000,
respectively.  Compensation expense for restricted shares granted in
May 2007 and which immediately vested totaled $357,000.





-13-


10.  Commitments
and Contingencies





Litigation


From time
to time the Company is a party to various lawsuits, claims and other legal
proceedings that arise in the ordinary course of business.  These
actions typically seek, among other things, compensation for alleged personal
injury, breach of contract, property damage, punitive damages, civil penalties
or other losses, or injunctive or declaratory relief.  With respect to
such lawsuits, the Company accrues reserves when it is probable a liability has
been incurred and the amount of loss can be reasonably estimated.  The
Company does not believe any of these proceedings, individually or in the
aggregate, would be expected to have a material adverse effect on results of
operations, cash flows or financial condition.





We have
been named as one of a substantial number of defendants in numerous individual
claims and lawsuits brought by the residents and landowners of New Orleans,
Louisiana and surrounding areas in the United States District Court for the
Eastern District of Louisiana. These suits have been classified as a subcategory
of suits under the more expansive proceeding,In re Canal Breaches Consolidation
Litigation,Civil Action No: 05-4182, (E.D. La,), which was instituted in
late 2005. While not technically class actions, the individual claims and
lawsuits are being prosecuted in a manner similar to that employed for federal
class actions. The claims are based on flooding and related damage from
Hurricane Katrina. In general, the claimants state that the flooding and related
damage resulted from the failure of certain aspects of the levee system
constructed by the Corps of Engineers, and the claimants seek recovery of
alleged general and special damages. The Corps of Engineers has contracted with
various private dredging companies, including us, to perform maintenance
dredging of the waterways. In accordance with a recent decision (In re Canal Breaches Consolidation
Litigation,Civil Action No: 05-4182, "Order and Reasons,"March 9,
2007 (E.D. La, 2007)), we believe that we have no liability under these claims
unless we deviated from our contracted scope of work on a project. In June of
2007, however, the plaintiffs have taken an appeal of this decision to the
United States Court of Appeals for the Fifth Circuit, where currently all
actions remaining in this litigation will be lodged.





11.  Other
Possible Contingencies





In May
2008, the Company learned of a federal criminal investigation that related to
certain contracts and contracting activities in the Jacksonville, Florida area,
of, among others, the Jacksonville Port Authority and SSI.  It
does not appear that the Company, or any of its subsidiaries, or their
respective operations, is the focus of such
investigation.  Nevertheless, investigators have secured certain
documents and other materials from the Company concerning SSI’s operations and
activities prior to the sale of its assets to the Company.  The
Company is further cooperating with the investigation, including responding to
requests for any additional relevant documents or materials.  Based on
information available to us at this time, we do not anticipate that the
investigation will have any material adverse impact on the Company’s financial
condition or results of operations.







12.  Stockholders’
Equity





Common
Stock





Prior to
May 2007, the Company had a capital structure consisting of Class A and Class B
Common stock.  The Class A stock was entitled to receive
cumulative dividends at the annual rate of 6 percent of the original issue
price. On May 17, 2007, the Company converted all Class A stock into preferred,
redeemed all such Class A stock and paid all outstanding dividends, totaling
$5.4 million.  Upon redemption, the preferred stock was
retired.  The Class B common stock was converted into common stock and
was subject to a 1 for 2.23 exchange of outstanding shares.  The
Company has authorized 50,000,000 shares, of which 21,565,324 have been issued
and are outstanding.  Common stockholders are entitled to vote and to
receive dividends if declared.





-14-


Item
2.                      Management’s Discussion and Analysis of Financial Condition and
Results of Operations





CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS





Unless the
context otherwise indicates, all references in this quarterly report to “Orion,”
“the company,” “we,” “our,” or “us” are to Orion Marine Group, Inc. and its
subsidiaries taken as a whole.





Certain
information in this Quarterly Report on Form 10-Q, including but not limited to
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (“MD&A”), may constitute forward-looking statements as such term
is defined within the meaning of the “safe harbor” provisions of Section 27A of
the Securities Exchange Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended.





All
statements other than statements of historical facts, including those that
express a belief, expectation, or intention are forward-looking statements. The
forward-looking statements may include projections and estimates concerning the
timing and success of specific projects and our future production, revenues,
income and capital spending. Our forward-looking statements are generally
accompanied by words such as “estimate,” “project,” “predict,” “believe,”
“expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey
the uncertainty of future events or outcomes.





We have
based these forward-looking statements on our current expectations and
assumptions about future events. While our management considers these
expectations and assumptions to be reasonable, they are inherently subject to
significant business, economic, competitive, regulatory and other risks,
contingencies and uncertainties, most of which are difficult to predict and many
of which are beyond our control. These and other important factors, including
those described under “Risk Factors” in Item 1A of the Company’s Annual Report
on Form 10-K for the year ended December 31, 2007 (2007 Form 10-K) (beginning on
page 16 thereto) may cause our actual results, performance or achievements to
differ materially from any future results, performance or achievements expressed
or implied by these forward-looking statements.  The forward-looking
statements in this quarterly report on Form 10-Q speak only as of the date of
this report; we disclaim any obligation to update these statements unless
required by securities law, and we caution you not to rely on them
unduly.





The
purpose of MD&A is to provide a narrative analysis explaining the reasons
for material changes in the Company’s (i) financial condition since the most
recent fiscal year-end, and (ii) results of operations during the current fiscal
year-to-date period and current fiscal quarter as compared to the corresponding
periods of the preceding fiscal year.  In order to better understand
such changes, this MD&A should be read in conjunction with the Company’s
fiscal 2007 audited consolidated financial statements and notes thereto included
in its 2007 Form 10-K (beginning on page F1 thereto), Item 7 Management’s
Discussion and Analysis of Financial Condition and Results of Operations
included in our 2007 Form 10-K (beginning on page 34 thereto) and with our
unaudited financial statements and related notes appearing elsewhere in this
quarterly report.





Overview





We are a
leading marine specialty contractor serving the heavy civil marine
infrastructure market. We provide a broad range of marine construction and
specialty services on, over and under the water along the Gulf Coast, the
Atlantic Seaboard and the Caribbean Basin. Our customers include federal, state
and municipal governments, the combination of which accounted for approximately
51% of our revenue in the six months ended June 30, 2008, as well as private
commercial and industrial enterprises. We are headquartered in Houston,
Texas.





Our
contracts are obtained primarily through competitive bidding in response to
“requests for proposals” by federal, state and local agencies and through
negotiation with private parties. Our bidding activity is affected by such
factors as backlog, current utilization of equipment and other resources,
ability to obtain necessary surety bonds and competitive considerations. The
timing and location of awarded contracts may result in unpredictable
fluctuations in the results of our operations.





Most of
our revenue is derived from fixed-price contracts. There are a number of factors
that can create variability in contract performance and therefore impact the
results of our operations. The most significant of these include the
following:





-15-


•
            completeness
      and accuracy of the original bid;


•
            increases
      in commodity prices such as concrete, steel and
  fuel;


•
            customer
      delays and work stoppages due to weather and environmental
      restrictions;


•
            availability
      and skill level of workers; and


•
            a
      change in availability and proximity of equipment and
      materials.





All of
these factors can impose inefficiencies on contract performance, which can
impact the timing of revenue recognition and contract profitability. We plan our
operations and bidding activity with these factors in mind and they have not had
a material adverse impact on the results of our operations in the
past.





Recent
Developments  As discussed in Note 3 in the Notes to Condensed
Consolidated Financial Statements included herein, the Company completed the
acquisition of substantially all of the assets of Subaqueous Services, Inc.
(“SSI”) on February 29, 2008.   Recently we learned of a federal
criminal investigation that appears to relate to certain contracts and
contracting activities in the Jacksonville, Florida area, of, among others, the
Jacksonville Port Authority and SSI.  It does not appear that the
Company, or any of its subsidiaries, or their respective operations, is the
focus of such investigation.  Nevertheless, investigators have secured
certain documents and other materials from the Company concerning SSI’s
operations and activities prior to the sale of its assets to the
Company.  The Company is further cooperating with the investigation,
including responding to requests for any additional relevant documents or
materials.  Based on information available to us at this time, we do
not anticipate that the investigation will have any material adverse impact on
the Company’s financial condition or results of operations.





OutlookCertain
economic indicators continue to suggest a weaker US economy, raising short-term
concerns regarding the stability of US domestic spending.  Moreover, a weak
economy could result in reduced demand for general construction projects, may
increase the number of potential bidders in our markets, could increase the
competitive environment through pressure on pricing, may divert governmental
funding from projects we perform to other uses, and may also produce less tax
revenue, thereby decreasing funds for public sector projects. 
Notwithstanding such concerns, however, we anticipate that such risks should be
mitigated by continued strength in most of our end markets, including port
development projects, general US infrastructure maintenance and upgrades, and
cruise industry port developments, which should provide adequate revenue
opportunities for the remainder of 2008.  However, while the U.S. Army
Corps of Engineers has begun releasing projects in the third quarter of 2008, we
believe the pace of projects involving dredging services to be released and the
resulting margin pressure in the Western Gulf Coast market will limit our
ability to recover the negative margin impacts of the two dredging projects that
experienced unforeseen production challenges in the first and second
quarters.  Looking beyond 2008, we remain confident that the end markets we
serve will continue to remain strong through sources such as the Water Resources
and Development Act, which was passed last year and other infrastructure
spending.





The cost
of certain commodities used in our business, such as concrete, steel and fuel
have risen substantially in recent months.  Because our projects are
normally short-term in nature, we are generally able to include price increases
in the costs of our bids,  and, in certain circumstances, may be able
to negotiate for price escalations during the execution of a
contract.   However, certain projects may be negatively impacted
by such cost increases.





Acquisition
of assets





As
discussed in Note 3 in the Notes to Condensed Consolidated Financial Statements
included herein, SSLLC, a wholly-owned subsidiary of the Company purchased
substantially all of the assets and related business of Subaqueous
Services.  Since the date of acquisition, we have integrated these
assets into our operations, and stand-alone financial information is not
provided.








-16-








Consolidated
Results of Operations





Three
months ended June 30, 2008 compared with three months ended June 30,
2007





Three
      months ended June 30,2008
            
            
            2007Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentContract
      revenues
            
            $
            67,070
            
            
            
            100.0
            %
            
            $
            51,479
            
            
            
            100.0
            %Cost
      of contract revenues
            
            
            57,240
            
            
            
            85.3
            
            
            
            40,414
            
            
            
            78.5Gross
      profit
            
            
            9,830
            
            
            
            14.7
            
            
            
            11,065
            
            
            
            21.5Selling,
      general and administrative expenses
            
            
            5,695
            
            
            
            8.5
            
            
            
            7,220
            
            
            
            14.0Operating
      income
            
            
            4,135
            
            
            
            6.2
            
            
            
            3,845
            
            
            
            7.5Interest
      (income) expenseInterest
      (income)
            
            
            (119
            )
            
            
            (0.2
            )
            
            
            (294
            )
            
            
            (0.6
            )Interest
      expense
            
            
            364
            
            
            
            0.5
            
            
            
            393
            
            
            
            0.8Interest
      (income) expense, net
            
            
            245
            
            
            
            0.3
            
            
            
            99
            
            
            
            0.2Income
      before income taxes
            
            
            3,890
            
            
            
            5.9
            
            
            
            3,746
            
            
            
            7.3Income
      tax expense
            
            
            1,489
            
            
            
            2.2
            
            
            
            1,466
            
            
            
            2.8Net
      income
            
            $
            2,401
            
            
            
            3.7
            %
            
            $
            2,280
            
            
            
            4.5
            %








Contract
Revenues.Revenues for the three months ended June 30, 2008 increased
approximately 30.3% as compared with the same period last
year.  Revenues are driven by the progress schedules and the size,
composition and scope of projects under contract at any given
time.  In the current year, we expanded geographically through the
addition of dredging and other projects along the eastern coast of the
US.  In addition, our average project size in the second quarter of
2008 was $2.1 million, an increase as compared with the second quarter of 2007
of $1.5 million.   Revenue generated from government agencies,
including federal, state and municipalities represented 45% of total revenues in
the second quarter of the current year, with projects in the private sector
comprising 55% of revenue, as compared with the second quarter of 2007, when the
mix of customers included 56% from government agencies and 44% from the private
sector.





Gross Profit.  Gross profit decreased $1.2 million, or 11.2%, in the second
quarter of 2008 as compared with the corresponding period last
year.  Approximately $2.0 million of the decrease in gross profit was
attributable to deterioration of two dredging projects due to unforeseen site
conditions that resulted in production delays and which adversely affected
margins.  Gross margin for the three months ended June 30, 2008 was
14.7%, a decrease from 21.5% in the prior year period.  Due to the
nature of contracts in progress in the second quarter of 2008, we self-performed
approximately 86% of our work, a decrease as compared with the prior year
period, when we self-performed approximately 90% of work, which generally
reduces margins.





Selling, General
and Administrative Expense.Selling, general and administrative expense
for the second quarter of 2008 was $5.7 million, representing a decrease of
$1.5 million as compared with the prior year period.  In May
2007, the Company incurred expenses related to its 144A stock
transaction.  Offsetting this one time-expense last year were
increases in the current year related to the amortization of the intangible
assets acquired from Subaqueous Services, as well as increased expenses related
to the addition of personnel and stock compensation expense related to grants
under our long-term equity incentive programs.





Income Tax
Expense  Our effective rate for the three months ended June 30,
2008 was 38.3% and differed from the Company’s statutory rate of 35% primarily
due to state income taxes, non-deductible stock based compensation expense
associated with employee incentive stock options and other permanent
differences. The effective rate of 39.1% for the three months ended June 30,
2007 differed from the statutory rate principally due to state income
taxes.








-17-





Six
months ended June 30, 2008 compared with six months ended June 30,
2007





Six
      months ended June 30,2008
            
            
            2007Amount
            
            
            Percent
            
            
            Amount
            
            
            PercentContract
      revenues
            
            $
            119,661
            
            
            
            100.0
            %
            
            $
            89,772
            
            
            
            100.0
            %Cost
      of contract revenues
            
            
            99,759
            
            
            
            83.4
            
            
            
            69,182
            
            
            
            77.1Gross
      profit
            
            
            19,902
            
            
            
            16.6
            
            
            
            20,590
            
            
            
            22.9Selling,
      general and administrative expenses
            
            
            11,522
            
            
            
            9.6
            
            
            
            11,348
            
            
            
            12.6Operating
      income
            
            
            8,380
            
            
            
            7.0
            
            
            
            9,242
            
            
            
            10.3Interest
      (income) expenseInterest
      (income)
            
            
            (268
            )
            
            
            (0.2
            )
            
            
            (560
            )
            
            
            (0.6
            )Interest
      expense
            
            
            490
            
            
            
            0.4
            
            
            
            839
            
            
            
            0.9Interest
      (income) expense, net
            
            
            222
            
            
            
            0.2
            
            
            
            279
            
            
            
            0.3Income
      before income taxes
            
            
            8,158
            
            
            
            6.8
            
            
            
            8,963
            
            
            
            10.0Income
      tax expense
            
            
            2,911
            
            
            
            2.4
            
            
            
            3,397
            
            
            
            3.8Net
      income
            
            $
            5,247
            
            
            
            4.4
            %
            
            $
            5,566
            
            
            
            6.2
            %








Contract
Revenues.Revenues for the six months ended June 30, 2008 increased
approximately 33.3% as compared with the same period last year.  In
the first half of 2007, we experienced delays in the commencement of work on
several projects for reasons beyond our control and we elected to withdraw from
a sole-source negotiated project, which reduced revenues in that
period.  Governmental agencies represented 51% and 60%of revenues in
the first six months of 2008 and 2007, respectively. Revenues generated from the
private sector represented 49% and 40% of total revenues in each respective
period of 2008 and 2007.





Gross Profit.  Gross profit decreased $0.7 million, or 3.3%, in the first
half of 2008 as compared with the corresponding period last
year.  Gross margin for the six months ended June 30, 2008 was 16.6%,
a decrease from 22.9% in the prior year period.  The mix of contracts
in progress in the first quarter of the current year put pressure on margin due
to a larger component of material costs, such as concrete and steel, which
generally are not marked up as much as labor and equipment intensive contracts,
and thereby reduce margins.  In addition, gross margins were impacted
by two dredging projects in the first and second quarter of 2008 as a result of
significant production delays mostly related to unexpected amounts of trash and
unforeseen adverse site conditions.





Selling, General
and Administrative Expense.Selling, general and administrative expense
increased slightly in the six months ended June 30, 2008 as compared with the
prior year period.  Current year expenses include amortization related
to intangible assets acquired from Subaqueous Services, a full complement of
public company expenses and increased expense due to the addition of
personnel.  In the second quarter of 2007, the Company incurred
one-time expenses upon completion of its 144A stock offering.





Income Tax
Expense  Our effective rate for the six months ended June 30,
2008 was 35.7% and differed from the Company’s statutory rate of 35% primarily
due to state income taxes, non-deductible stock based compensation expense
associated with employee incentive stock options and other permanent
differences. In the first quarter of 2008, the Company revised its estimate of
the impact of certain permanent deductions available to it on its federal tax
return, which reduced its effective rate for the period.  The
effective rate of 37.9% for the six months ended June 30, 2007 differed from the
statutory rate principally due to state income taxes.





-18-


Liquidity
and Capital Resources





Our
primary liquidity needs are to maximize our working capital to continually
improve our bonding position, invest in capital expenditures, expand internally,
and pursue strategic acquisitions. Historically, our source of liquidity has
been cash provided by our operating activities and borrowings under our credit
facility. At December 31, 2007, we had paid our debt facility in full and we had
available cash of $12.6 million.  On February 29, 2008, we borrowed
$35 million to fund the purchase of the assets of Subaqueous Services and at
June 30, 2008, our net indebtedness, which is comprised of total debt less cash
was $20.5 million.  We expect to meet our future internal liquidity
and working capital needs from funds generated by our operating activities for
the next 12 months.





Our
working capital position fluctuates from period to period due to normal
increases and decreases in operational activity. At June 30, 2008, our working
capital was $36.9 million compared to $32.5 million at December 31,
2007. The increase of $4.4 million in working capital was primarily due to
an improved cash position and increases in accounts receivable, resulting from
the increased revenues, and other prepaid items, including estimated tax
payments, offset by an increase in liabilities related to billings in excess of
costs and estimated earnings on uncompleted contracts.  As of June 30,
2008, we had cash on hand and availability under our revolving credit facility
of $22.3 million.





The
following table provides information regarding our cash flows and capital
expenditures for the six months ended June 30, 2008 and 2007
(unaudited):





Six
      months ended June 30,2008
            
            
            2007Cash
      flows provided by operating activities
            
            $
            12,180
            
            
            $
            2,241Cash
      flows used in investing activities
            
            $
            (45,184
            )
            
            $
            (2,407
            )Cash
      flows provided by (used in) financing activities
            
            $
            34,920
            
            
            $
            (2,460
            )





Operating
Activities.During the six months ended June 30, 2008, our operating
activities provided $12.2 million of cash as compared to $2.2 million
for the six months ended June 30, 2007. Contributing to the increase between
comparable periods was an increase of $7.3 million within working capital
components, related to the timing of cash receipts and payments.  In
addition, we had increases in non-cash items affecting net income, such as
depreciation and amortization expense associated with the equipment and
intangible assets acquired from SSI, and an increase in non-cash stock-based
compensation related to grants of options during 2007.





Investing
Activities.On February 29, 2008, we purchased substantially all of the
assets of SSI for a total purchase price of $35 million, plus $1.7 million
related to the acquisition of projects under contract by SSI, for total cash
related to the acquisition of $36.7 million.  We purchased heavy
construction equipment not related to SSI totaling approximately $8.6 million,
in the six months ended June 30, 2008, as compared with capital asset additions
of $3.9 million in the three months ended June 30, 2007.





Financing
Activities.The increase in cash provided by financing activities for the
six months ended June 30, 2008 is attributable to our borrowing of $35 million
under of line of credit to fund the assets purchased from SSI.  In the
prior year period, we paid down our principal balances on our debt facility in
the amount of $21.9 million, primarily through the use of cash received in
connection with our stock offering.





-19-


Sources
of Capital





In
addition to our cash balances and cash provided by operations, we have a credit
facility available to us to finance capital expenditures and working capital
needs.





The
Company has maintained a credit agreement with several participating banks since
October 2004.  In July 2007, the Company restated its credit agreement
with its existing lenders.  Debt under the new credit facility
included the balance of the old credit facility of $3.1 million, which was paid
in full in December 2007.  In addition, the terms of the credit
facility provided for the Company to borrow up to $25 million under an
acquisition term loan facility and up to $8.5 million under a revolving line of
credit.  At the discretion of the Company’s lenders, either the
acquisition term loan facility or the revolving line of credit may be increased
by $25 million, of which $10 million was used in the purchase of the assets of
SSI.





The
revolving line of credit is subject to a borrowing base and availability on the
revolving line of credit is reduced by any outstanding letters of
credit.  At June 30, 2008, the Company had outstanding letters of
credit of $692,000, thus reducing the balance available to the Company on the
revolving line of credit to approximately $7.8 million.  The Company
is subject to a monthly commitment fee on the unused portion of the revolving
line of credit at a rate of 0.20% of the unused balance.  As of June
30, 2008, no amounts had been drawn under the revolving line of
credit.





As
referenced in Note 3 in the Notes to Condensed Consolidated Financial Statements
included herein, the Company borrowed $35 million to fund the purchase of the
assets of SSI in February 2008 and amended its credit facility to reflect the
borrowing.  Payments of interest are due quarterly beginning June 30,
2008.  Payments of principal commence December 31, 2008 in seven equal
quarterly installments based on 2.5% of the balance outstanding on September 30,
2008, with the remaining balance due September 30, 2010.  All
provisions under the credit facility mature on September 30, 2010.





Interest
on the Company’s borrowings is based on the prime rate or LIBOR rate then in
effect, at the Company’s discretion.  For each prime rate loan drawn
under the credit facility, interest is due quarterly at the then prime rate
minus a margin that is adjusted quarterly based on total leverage ratios, as
applicable.  For each LIBOR loan, interest is due at the end of each
interest period at a rate of the then LIBOR rate for such period plus the LIBOR
margin based on total leverage ratios, as applicable.  At June 30,
2008, interest on the Company’s outstanding loans was based on the prime
rate.  The prime interest rate at June 30, 2008 was 4.0%.





The
credit facility requires the Company to maintain certain financial ratios,
including net worth, fixed charge and leverage ratios, and places other
restrictions on the Company as to its ability to incur additional debt, pay
dividends, advance loans and other actions.  The credit facility is
secured by the bank accounts, accounts receivable, inventory, equipment and
other assets of the Company and its subsidiaries.  As of June 30,
2008, the Company was in compliance with all debt covenants.





Bonding
Capacity





We are
generally required to provide various types of surety bonds that provide
additional security to our customers for our performance under certain
government and private sector contracts.  Our ability to obtain surety
bonds depends on our capitalization, working capital, past performance and
external factors, including the capacity of the overall surety
market.  At June 30, 2008, we believe our capacity under our current
bonding arrangement with Liberty Mutual was in excess of $400 million, of which
we had approximately $100 million in surety bonds outstanding.  During
six months ended June 30, 2008, approximately 51% of projects, measured by
revenue, required us to post a bond.





-20-


Item
3.                      Quantitativeand Qualitative Disclosures about Market
Risk





Management
is actively involved in monitoring exposure to market risk and continues to
develop and utilize appropriate risk management techniques. Our exposure to
significant market risks includes outstanding borrowings under our floating rate
credit agreement and fluctuations in commodity prices for concrete, steel
products and fuel. An increase in interest rates of 1% would not have increased
interest expense significantly for the three and months ended June 30,
2008.  Although we attempt to secure firm quotes from our suppliers,
we generally do not hedge against increases in prices for concrete, steel and
fuel.  Commodity price risks may have an impact on our results of
operations due to the fixed-price nature of many of our contracts.





As of
June 30, 2008, there was $35.0 million outstanding under our credit
agreement and there were no borrowings outstanding under our revolving credit
facility; however, there were letters of credit issued in the amount of $692,000
which lower the amount available to us on the revolving facility to
approximately $7.8 million.





Item
4.                     Controlsand Procedures





(a)
            Evaluation of Disclosure
      Controls and Procedures.As required, the Company’s
      management, with the participation of its Chief Executive Officer and
      Chief Financial Officer, have conducted an evaluation of the effectiveness
      of disclosure controls and procedures (as such term is defined in Rules
      13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
      amended) as of the end of the period covered by this quarterly
      report.  Based on that evaluation, such officers have concluded
      that the disclosure controls and procedures are
  effective.


(b)
            Changes in Internal
      Controls.There have been no changes in our internal
      controls over financial reporting during the period covered by this report
      that have materially affected, or are reasonably likely to materially
      affect, our internal controls over financial
  reporting.











-21-


PART II– Other Information








Item
1.  Legal Proceedings





For
information about litigation involving us, see Note 10 to the condensed
consolidated financial statements in Part I of this report, which we incorporate
by reference into this Item 1.





Item
1A.  Risk Factors





There
have been no material changes to the risk factors previously disclosed in our
2007 Form 10-K





Item
4.                      Submission
of Matters to a Vote of Security Holders





Date of
Meeting:                                           May
22, 2008





Type of
Meeting:                                           Annual
Meeting of Shareholders





Election of
Directors





Nominee
            
            Votes For
            
            
            Votes WithheldThomas
      N. Amonett
            
            
            17,257,914
            
            
            
            6,950





Other
Matters





For
            
            
            Against
            
            
            AbstainRatification
      of the appointment of Grant Thornton LLP as the Company’s independent
      registered public accounting firm
            
            
            17,117,217
            
            
            
            147,648
            
            
            
            -0-





Item
5.                      Other
Information





On May
22, 2008, our Board of Directors (the “Board”) approved certain changes to (i)
the cash compensation of non-employee directors of the Company, and (ii) the
equity compensation of non-employee directors of the Company, as recommended by
the Compensation Committee of the Board.  The new cash and equity
compensation program, which was approved by the Board, effective for 2008, is
included as Exhibit 10.1 below in “Item 6. Exhibits”





Item
6.                      Exhibits








10.1* Changes to compensation of non-employee directors, effective for
2008.


31.1*
            Certification
      of the Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002


31.2*
            Certification
      of the Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002


32.1*
            Certification
      of the Chief Executive Officer and the Chief Financial Officer pursuant to
      18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002





filed herewith





-22-


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








ORION
      MARINE GROUP, INC.By:
            /s/
      J. Michael PearsonAugust
      8, 2008
            J.
      Michael PearsonPresident
      and Chief Executive OfficerBy:
            /s/
      Mark R. StaufferAugust
      8, 2008
            Mark
      R. StaufferExecutive
      Vice President and Chief Financial
Officer








-23-