Securities
and Exchange Commission


Washington,
DC 20549





FORM
10-KSB/A





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





For the fiscal year
ended  December
31, 2006





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 No.  0-19761




OP-TECH
Environmental Services, Inc.


(Exact
name of registrant as specified in its charter)




Delaware 91-1528142


(State or other jurisdiction of    (I.R.S. Employer
incorporation


or organization)         
Identification No.)





6392 Deere Road, Syracuse,
NY         
        
  13206


(Address
of principal executive
office)          (Zip
Code)




(315) 463-1643


(Registrant's
telephone number, including area code)








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


None





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


Common Stock, $.01 par
value


(Title of
Class)





Indicate
by check mark if the registrant is a well known seasoned issuer as defined in
Rule 405 of the Securities Act:


Yes
[  ] or No [X]





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act:


Yes[  ]or No[X]





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes[X]or No[  ]





Indicate
by check mark if disclosure of delinquent filers pursuant to item 405 of
regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act:




Large
accelerated filer [   ]   Accelerated filer
[   ] Non-accelerated filer [X]





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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and ask price of such common equity as of the last
business day of the registrants most recently completed fiscal quarter: $8,811,528





Indicate
the number of shares outstanding of each of the Company’s classes of common
stock, as of March 5, 2007.  Common stock, $.01 par value: 11,748,704











EXPLANATORY
NOTE





RESTATEMENT
OF FINANCIAL STATEMENTS





This  Amendment  No.  1
on  Form  10-KSB/A,  which  amends  and  restates  items
identified below with respect to the Form 10-KSB, filed by Op-Tech Environmental
Services, Inc. ("we" or "the Company") with the Securities and
Exchange  Commission  (the "SEC") on March 23, 2007 (the
"Original  Filing"),  is being filed to reflect the
restatement of our financial statements for the fiscal year ended December 31,
2006.





As
previously  announced,  our management, on March 31, 2008,
concluded that the Company's  previously filed financial statements as
of December 31, 2006  should no longer be relied upon as a result of
the  Company's  determination  that the worker’s
compensation liabilities and accounts payable were understated by $205,000 and
$36,000, respectively.  Authorized  officers of the Company
discussed this matter with the Company's  independent public
accounting firm who agreed that the Company's previously issued financial
statements described above could not be relied upon and needed to be
restated.  See "Note 15 - Restatement" in the Notes to
Financial  Statements  for
further  details.  This Form 10-KB/A also amends the
disclosure under “Item 9a. Controls and Procedure” in the Original
Filing.





This
Form  10-KSB/A  only  amends
and  restates  certain  information  in
Item 6  (Selected Financial Data), Item 7
(Management's  Discussion  And Analysis Of Financial
Condition And Results Of Operations),  Item 9a ( Controls and
Procedures), Item 15 (Financial  Statements), and
such  amendment and  restatement  with respect to
Items 6 and 15 only reflect the restatement of the
financial  statements as described above.  Except for the
foregoing  amended and
restated  information,  this
Form  10-KSB/A  continues to describe  conditions
as of the date of the Original Filing,  and the disclosures
contained   herein  have  not  been  updated  to  reflect  events,   results  or
developments  that have  occurred  after
the  Original  Filing,  or to modify or update
those  disclosures  affected
by  subsequent  events.  Among other things,
forward-looking  statements made in the Original Filing have not been
revised to reflect events,  results
or  developments  that have occurred or facts that have
become  known  to us after  the  date of
the  Original  Filing  (other  than the
restatement),  and  such  forward-looking  statements  should  be
read in  their historical context.  This Form 10-KSB/A
should be read in conjunction with the Company's filings made with the SEC
subsequent to the Original Filing, including any amendments to those
filings.











PART
      I





SPECIAL
NOTICE REGARDING FORWARD-LOOKING STATEMENTS





The
Company is including the following cautionary statement in this Form 10-K to
make applicable and take advantage of the “safe harbor” provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statement made by, or on behalf of, the Company.  This 10-K, press
releases issued by the Company, and certain information provided periodically in
writing and orally by the Company’s designated officers and agents contain
statements which constitute forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934.  The words expect, believe, goal, plan, intend,
estimate, and similar expressions and variations thereof used are intended to
specifically identify forward-looking statements.  Where any such
forward-looking statement includes a statement of the assumptions or basis
underlying such forward-looking statement, the Company cautions that, while it
believes such assumptions or basis to be reasonable and makes them in good
faith, assumed facts or basis almost always vary from actual results, and the
differences between assumed facts or basis and actual results can be material,
depending on the circumstances.  Where, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief as
to future results, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or
accomplished.





ITEM
1. BUSINESS





General





OP-TECH
Environmental Services, Inc. and Subsidiaries (the “Company”), a Delaware
corporation headquartered in Syracuse, New York, provides comprehensive
environmental and industrial cleaning and decontamination services predominately
in New York, New England, Pennsylvania, New Jersey, and Ohio.  The
Company performs industrial cleaning of hazardous and non-hazardous materials
and provides varying services relating to plant facility closure, including
interior and exterior demolition and asbestos removal.  In addition,
the Company provides remediation services for sites contaminated by hazardous
and non-hazardous materials and provides 24-hour emergency spill response
services.  The Company’s revenues are derived from state agencies,
industrial companies and municipalities facing complex environmental clean-up
problems associated with hazardous and non-hazardous materials as required by
various governmental agencies.  The Company’s services include
assessing the regulatory, technical, and construction aspects of the
environmental issue, and performing the necessary remediation
activities.  The Company seeks to provide its clients with remedial
solutions which integrate the various aspects of a project and are
well-documented, practical, cost effective, and acceptable to regulatory
agencies and the public.





In
December 2004, the Company’s wholly-owned subsidiary, OP-TECH AVIX, Inc., became
inactive.  The subsidiary is no longer pursuing a separate line of
business and the Company now operates in only one business segment.








Services





Transportation and Disposal
Services





The
Company provides transportation of bulk and containerized hazardous and
non-hazardous wastes from customer sites to customer-designated landfills and
disposal facilities.  The Company also provides liquid tank truck
transports equipped with vacuum pumps.





24-Hour Emergency Spill
Response





Many of
the Company’s decontamination and mitigation activities result from a response
to an emergency situation by one of its response teams.  These
incidents can result from transportation accidents involving chemical or
petroleum substances, fires at chemical facilities or hazardous waste sites,
transformer fires or explosions involving PCBs, and other unanticipated
events.  The substances involved may pose an immediate threat to
public health or the environment, such as possible groundwater
contamination.  The steps performed by the Company include rapid
response, containment and control procedures, sampling for analytical testing
and assessment, neutralization and treatment, and collection and transportation
of the substance to an appropriate treatment or disposal
facility.  The Company derives a material portion of its revenues from
an agreement with the New York State Department of Environmental Conservation
(NYSDEC) to provide emergency response services in certain areas of New York
State, payment of which is guaranteed by the NYSDEC.





Asbestos
Abatement





The
Company provides asbestos abatement contracting services to both the public and
private sectors.  The Company has expertise in all types of asbestos
abatement including removal, disposal and enclosure, and
encapsulation.  Asbestos removal is performed in commercial buildings,
industrial facilities, and governmental buildings.





Interior
Demolition/Structural Dismantling





The
Company provides interior demolition services such as removing walls, ceilings,
and flooring.  In addition, the Company offers structural dismantling
services and has experience in razing concrete, wood and steel structures,
concrete and brick chimneys, and concrete piers and foundations.





On-Site Industrial and Waste
Management Services





The
Company provides on-site industrial cleaning and waste management
services.  Specialized services for the handling, processing and
disposal of hazardous wastes are performed by vacuuming, soda blasting,
hydroblasting, dredging, dewatering and sludge processing, sludge pumping,
chemical cleaning, and tank cleaning.





Excavation and Site
Remediation Services





The
Company provides excavation and soil blending services for treatment of
contaminated soil using heavy equipment such as excavators and
loaders.  The Company primarily provides on-site soil blending to
public utilities and municipal customers.





Hydrogeological
Services





The
Company provides hydrogeological services to petroleum companies, engineering
firms and local and state public entities. The Company maintains several
geologists on staff.  Through performing hydrogeological assessments,
the Company evaluates and determines the need for ground water remediation
systems, pump and treatment systems and sub-surface petroleum product
recovery.  In addition, the Company provides air sparging systems,
long-term remediation system operations and maintenance as well as monitoring
well and recovery well installations.





Non-Hazardous Waste Transfer
and Storage Facility





The
Company operates a New York State permitted non-hazardous waste treatment,
storage and transfer facility in its Waverly, New York office.  The
Company accepts non-hazardous waste in bulk or containerized form, consolidates
the waste and then transfers it to a landfill or recycling
facility.





Technologies
Employed





The
Company utilizes a wide variety of physical and chemical treatment technologies
in performing its remediation activities.  Physical treatment
technologies generally involve filtration and aeration techniques and are used
to separate contaminants from soils, slurries, or water.  Chemical
treatment technologies generally involve flocculation, clarification,
precipitation, polymer addition, chemical oxidation, chemical absorption, and
stabilization.  Depending on the contaminants present and the site
characteristics, these technologies are combined into integrated treatment
systems which reduce contaminant concentrations to levels consistent with
prescribed regulatory standards.





1


Regulation





The
business of the Company and its clients is subject to extensive, stringent, and
evolving regulation by the EPA and various other federal, state, and local
environmental authorities.  These regulations directly impact the
demand for the services offered by the Company.  In addition, the
Company is subject to the Federal Occupational Safety and Health Act, which
imposes requirements for employee safety and health.  The Company
believes it is in material compliance with all federal, state, and local
regulations governing its business.





RCRA.  The Resources
Conservation and Recovery Act of 1976 is the principal federal statute governing
hazardous waste generation, treatment, storage, and disposal.  RCRA,
or EPA-approved state programs may govern any waste handling activities of
substances classified as “hazardous.”  The 1984 amendments to RCRA
substantially expanded its scope by, among other things, providing for the
listing of additional wastes as “hazardous” and providing for the regulation of
hazardous wastes generated in lower quantities than previously had been
regulated.  Additionally, the amendments impose restrictions on land
disposal of certain hazardous wastes, prescribe more stringent standards for
hazardous waste land disposal sites, set standards for underground storage tanks
and provide for “corrective” action at or near sites of waste management
units.  Under RCRA, liability and stringent operating requirements may
be imposed on a person who is either a “generator” or a “transporter” of
hazardous waste, or an “owner” or “operator” of a waste treatment, storage, or
disposal facility.








Regulation
of underground storage tanks (UST) legislation, in particular Subtitle I of
RCRA, focuses on the regulation of underground tanks in which liquid petroleum
or hazardous substances are stored and provides for the regulatory setting for a
portion of the Company’s work.  Subtitle I of RCRA requires owners of
all existing underground tanks to list the age, size, type, location, and use of
each tank with a designated state agency.  The EPA has published
performance standards and financial responsibility requirements for storage
tanks over a five year period.  These regulations also require all new
tanks which are installed to have protection against spills, overflows, and
corrosion.  Subtitle I of RCRA provides civil penalties of up to
$15,000 per violation for each day of non-compliance with tank requirements and
$10,000 for each tank for which notification was not given or was
falsified.  RCRA also imposes substantial monitoring obligations on
parties which generate, transport, treat, store, or dispose of hazardous
waste.





Superfund Act.  The
Comprehensive Environmental Response Compensation and Liability Act of 1980
(“Superfund Act”) generally addresses clean-up of inactive sites at which
hazardous waste treatment, storage, or disposal took place.  The
Superfund Act assigns joint and several liability for cost of clean-up and
damages to natural resources to any person who, currently, or at the time of
disposal of a hazardous substance who by contract, agreement, or otherwise
arranged for disposal or treatment, or arranged with a transporter for transport
of hazardous substances owned or possessed by such person for disposal or
treatment;  and to any person who accepts hazardous substances for
transport to disposal or treatment facilities or sites from which there is a
release or threatened release.  Among other things, the Superfund Act
authorized the federal government either to clean up these sites itself or to
order persons responsible for the situation to do so.  The Superfund
Act created a fund, financed primarily from taxes on oil and certain chemicals,
to be used by the federal government to pay for the clean-up
efforts.  Where the federal government expends money for remedial
activities, it may seek reimbursement from the Potentially Responsible Parties
(“PRPs”).





The
liabilities provided by the Superfund Act could, under certain factual
circumstances, apply to a broad range of possible activities by the Company,
including generation of hazardous substances, releases of hazardous substances
during transportation, failure to properly design a clean-up, removal or
remedial plan and failure to achieve required clean-up standards, leakage of
removed wastes in transit or at the final storage site, and remedial operations
on ground water.  Such liabilities can be joint and several where
other parties are involved.





Other.  The
Company’s operations are subject to other federal laws protecting the
environment, including the Clean Water Act and the Toxic Substances Control
Act.





Many
states have also enacted statutes regulating the handling of hazardous
substances, some of which are broader and more stringent than the federal laws
and regulations.








Competitive
Conditions





The
markets for environmental remediation, as well as demolition and asbestos
removal, continue to be very competitive.  The Company competes with
many different firms ranging from small local firms to large national firms,
many of which have greater financial and marketing resources than the
Company.  Competition in environmental services is based largely on
competitive pricing and quality of service provided.  Other
competitive factors include geographic location as well as
reputation.  Management believes the Company is one of the few firms
based in its market area that offers a high quality combination of environmental
services at the most competitive prices.  In addition, through its
wide range of environmental services, good reputation, and competitive pricing,
the Company hopes to maintain a competitive edge in the environmental services
business.





The
Company operates field offices in Syracuse, Massena, Rochester, Albany,
Plattsburgh, Waverly and Buffalo, New York, as well as Edison, New Jersey and
Cleveland, Ohio.







Seasonality





Typically
during the first quarter of each calendar year there is less demand for
environmental remediation due to the cold weather, particularly in the Northeast
and Midwest regions.  In addition, factory closings for the year-end
holidays reduce the volume of industrial waste generated, which results in lower
volumes of waste handled by the Company during the first quarter of the
following year.





Customers





The
Company’s client base includes state agencies, industrial companies, railroads,
real estate developers, auto parts manufacturers, aluminum producers, utility
companies, waste disposal firms, municipalities, and engineering
firms.  During 2006, the Company performed services for approximately
900 clients.  These projects were substantially all short-term (three
months or less) in nature.  The largest business segment for the each
of the years ended December 31, 2006, 2005, and 2004 was Emergency Spill
Response services.  Emergency Spill Response accounted for 21%, 33%
and 33% of the Company’s revenues for the years ended December 31, 2006, 2005,
and 2004, respectively.





During
2006, the Company had project revenue of approximately $8,509,000 related to
several contracts with the New York State Department of Environmental
Conservation, which totaled approximately 24% of the Company’s
revenues.  The spill response and remediation contracts with the New
York State Department of Environmental Conservation expire in November
2008.  The loss of this project revenue could have a material adverse
effect on the Company.





2


Insurance





The
Company maintains commercial general liability, asbestos liability and pollution
liability insurance which provides aggregate coverage limits of $12
million.  In addition, the Company also maintains workers
compensation, comprehensive automobile, and Directors and Officers liability
insurance.  The Company’s insurance coverage is consistent with the
insurance requirements found in the environmental remediation
industry.





Employees





The
Company has entered into a contractual co-employment agreement with a third
party provider.  As of February 1, 2007, the Company had a total of
approximately 180 full-time employees under this contract.  The
Company’s ability to retain and expand its staff will be an important factor in
determining the Company’s future success.  The Company considers its
relations with its employees to be good, and the Company has never had a work
stoppage or threat of a work stoppage.








Available
Information





Our
internet address is www.op-tech.us.  There we make available, free of
charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports, as soon as reasonably
practicable after we electronically file such material with the Securities and
Exchange Commission (SEC).  The information found on our Web site is
not part of this or any other report we file with or furnish to the
SEC.





The
public may read and copy any materials that we file with the SEC at the SEC’s
Public Reference Room located at 100 F Street NE, Washington, DC
20549.  The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC
also maintains electronic versions of our reports on its website at
www.sec.gov.























ITEM
      1A. RISK FACTORS





Operations
of the Company are funded by a working capital line of credit.  The
borrowing limit on the working capital line of credit is $6,000,000 and the
expiration date is July 1, 2008.  The loss of the availability of this
line of credit after July 1, 2008 could have an adverse effect on the Company if
alternate financing sources are not available.





Sales to
one customer, the New York State Department of Environmental Conservation (“NYS
DEC”) accounted for 24%, 28% and 33% of the Company’s revenues for the years
ended December 31, 2006, 2005 and 2004, respectively.  The Company’s
Spill Response and Remediation contracts with the NYS DEC expire in November
2008.  The loss of the NYS DEC contract after November 2008 could have
an adverse effect on the Company.














ITEM
      1B. UNRESOLVED STAFF COMMENTS





Not
applicable.








ITEM
      2. PROPERTIES





The
Company leases its corporate headquarters in Syracuse, NY and its branch office
locations in Buffalo, Rochester, Waverly, Albany, and Plattsburgh, NY, Edison,
NJ and Cleveland, OH.  The Company leases an aggregate of
approximately 74,100 square feet of office and shop space at those
locations.  The leases expire at various times through May 31,
2012.  The current aggregate monthly lease payment is $32,489 plus
utilities.





The
Company formerly owned a 13.93-acre parcel of land located in the Town of
Massena, St. Lawrence County, New York.  There are three support
buildings on the premises which include office and shop space.  The
Company sold this parcel in November 2006 for $700,000.  As part of
the terms of the sale, the purchaser of the property agreed to allow the Company
to continue to rent the premises for a period of nine months after the closing
of the sale at a rental rate of $7,500 per month plus utilities.  The
term of this post possession period extends through July 31,
2007.  The Company believes that it will be able to enter into a lease
for suitable office and shop space in the Massena, NY area after the post
possession period concludes.








Equipment





The
Company’s owned equipment consists primarily of construction equipment such as
vacuum trucks, dump trucks, tankers, excavation equipment, utility vehicles,
pumps, generators, and compressors, some of which have been specially modified
for the Company’s use.







3


ITEM
3. LEGAL PROCEEDINGS





The
Company has an accrued liability of $400,000 at December 31,
2006.  The liability has been recorded to cover potential legal costs
and fees, and also any indemnity, settlement, or other payments necessary to
dispose of a claim against the Company.






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








The
Company held its annual shareholders meeting on May 4, 2006.  The
shareholders voted on the ratification of Dannible & McKee, LLP as the
Company’s auditors, and the election of seven directors.  The
following votes were cast for each:





For
            
            AgainstRatification
      of Dannible & McKee, LLP asthe
      Company’s auditors
            
            
            
            6,141,349
            
            -0-Election
      of Directors:Robert
      J. Berger
            Director
            
            
            6,141,349
            
            -0-Richard
      L. Elander
            Director
            
            
            6,141,349
            
            -0-Cornelius
      B. Murphy, Jr.
            Director
            
            
            6,141,349
            
            0-Steven
      A. Sanders
            Director
            
            
            6,141,349
            
            -0-George
      W. Lee
            Director
            
            
            6,141,349
            
            -0-Richard
      Messina
            Director
            
            
            6,141,349
            
            -0-Richard
      Jacobson
            Director
            
            
            6,141,349
            
            -0-











There
were no other matters submitted to a vote of the Company’s
shareholders.





4





PART
II





ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS





(a)
            The
      shares of the Company’s common stock are listed on the Over the Counter
      Bulletin Board under the symbol
OTES.





The high
and low closing bid prices for the shares of the Company’s common stock were as
follows:








Quarter Ended
            
            High Bid
            
            
            Low BidMarch
      31, 2005
            
            $
            0.75
            
            
            $
            0.55June
      30, 2005
            
            $
            0.75
            
            
            $
            0.46September
      30, 2005
            
            $
            0.75
            
            
            $
            0.45December
      31, 2005
            
            $
            0.45
            
            
            $
            0.28March
      31, 2006
            
            $
            0.50
            
            
            $
            0.36June
      30, 2006
            
            $
            0.50
            
            
            $
            0.35September
      30, 2006
            
            $
            0.85
            
            
            $
            0.29December
      31, 2006
              First
      quarter through
            
            $
            0.75
            
            
            $
            0.50March
      5, 2007
            
            $
            0.75
            
            
            $
            0.75








The
aforementioned prices reflect inter-dealer prices, without retail mark-up,
mark-down, or commission and may not necessarily represent actual
transactions.





(b)
            At
      March 5, 2007, there were approximately 197 holders of record of the
      Company’s common stock.





(c)
            The
      Company has never paid any
dividends.








Equity
Compensation Plan Information





Plan
      Category
            
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights (1)
              
              (a)
            
            
            Weighted-average
      exercise price of outstanding options, warrants and rights
(1)
              
              
              (b)
            
            
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column (a))
      (1)
              
              (c)Equity
      compensation plans approved by security holders
            
            
            1,143,998
            
            
            $
            0.18
            
            
            
            95,002Equity
      compensation plans not approved by security holders
            
            
            -
            
            
            
            -
            
            
            
            -Total
            
            
            1,143,998
            
            
            $
            0.18
            
            
            
            95,002





(1) As of March 5,
2007.


5


ITEM
6. SELECTED FINANCIAL DATA








Statement of Operations
Data




Year
      Ended December 312006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Project
      Billings
            
            $
            35,069,989
            
            
            $
            21,784,096
            
            
            $
            18,170,103
            
            
            $
            15,037,888
            
            
            $
            15,093,052Net
      Income (loss)
            
            $
            207,973
            
            
            $
            (145,744
            )
            
            $
            200,086
            
            
            $
            1,959,031
            
            
            $
            553,666Net
      Income (loss) per Share-Basic
            
            
            .02
            
            
            $
            (.01
            )
            
            $
            .02
            
            
            $
            .13
            
            
            $
            .04- Diluted
            
            
            .02
            
            
            
            (.01
            )
            
            $
            .02
            
            
            $
            .12
            
            
            $
            .04








In 2006
the Company recorded compensation expense of $68,613 in conjunction with the
adoption of Financial Accounting Standards Board Statement No. 123R “Share Based
Payment”.











Balance Sheet
Data




As
      of December 312006
            
            
            2005
            
            
            2004
            
            
            2003
            
            
            2002Total
      Assets
            
            $
            18,470,167
            
            
            $
            13,185,755
            
            
            $
            12,241,068
            
            
            $
            9,124,305
            
            
            $
            8,130,139Long-Term
      Obligations
            
            $
            7,859,741
            
            
            $
            6,024,691
            
            
            $
            5,366,959
            
            
            $
            4,156,356
            
            
            $
            3,570,103

















6


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








LIQUIDITY
AND CAPITAL RESOURCES





At
December 31, 2006 the Company had cash and cash equivalents of $30,981 as
compared to $90,928 at December 31, 2005.  Cash in the Company’s
operating account is electronically transferred nightly to pay down the
Company’s revolving line of credit in order to minimize interest
expense.





At
December 31, 2006, the Company had working capital of $6,757,545 compared to
working capital of $3,927,136 at December 31, 2005.  The Company had a
current ratio of approximately 1.91 to 1 at the end of 2006 compared to 1.92 to
1 at the end of 2005.





Cash used
in operating activities during 2006 was $1,149,460 compared to $568,200 during
2005.  The increase in cash used in operating activities in 2006 was
mainly attributable to a net increase in accounts receivable due to an increase
in project volume.





The
Company’s net cash used in investing activities of $339,786 during 2006 was
attributable to the purchase of various field and office equipment offset by
proceeds from the sale of property.





Cash
provided by financing activities of $1,429,299 in 2006 was primarily due to the
timing of pay downs and cash advances on the Company’s line of credit, as was
necessitated by the net cash used in operating and investing
activities.





The
Company has a loan agreement that provides for borrowings up to $6,000,000 on a
revolving basis, collateralized by all accounts receivable, inventory and
equipment now owned or acquired later.  The loan is payable on July 1,
2008, bears interest at a rate of prime plus .50 percent, is subject to certain
restrictive financial covenants, and is subject to default if there is a
material adverse change in the financial or economic condition of the
Company.  As of December 31, 2006, borrowing against the revolving
loan aggregated $5,731,548.





During
2006, all principal payments on the Company’s debt were made within payment
terms.





The
Company has an interest rate swap agreement that has been designated as a
hedge.  The swap will be evaluated for effectiveness on a quarterly
basis and any ineffective portion will be charged to earnings.  The
effect of the swap is to fix the rate being paid on the term loan at
7.80%.





The
Company expects, based on budgeted operating results and the continued
availability of its line of credit, that it will be able to meet obligations as
they come due.










RESULTS
OF OPERATIONS





This
financial review should be read in conjunction with the accompanying
Consolidated Financial Statements and accompanying notes.











FACTORS
THAT MAY AFFECT FUTURE RESULTS





The
Company’s future operating results may be affected by a number of factors,
including the Company’s ability to successfully increase market share in its
existing service territory while expanding its services into other markets,
realize benefits from cost reduction programs, and utilize its facilities and
work force profitably in the face of intense price competition.











EFFECT
OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS





In July
2006 the Financial Accounting Standards Board issued FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes”.  The interpretation is
required to be adopted in the first quarter of 2007.  The Company does
not anticipate any significant impact on its financial position, results of
operations or cash flows as a result of the adoption of the
interpretation.







7


CONTRACTUAL
OBLIGATIONS





The Company’s estimated future
      payments as of December 31, 2006 related to its material debt and other
      certain contractual obligations and the timing of those payments are set
      forth below.  Since many of these payment amounts are not fixed,
      the amounts in the table are solely estimates and the actual amounts may
      be different.







Payments
      Due By Period:Contractual
      Obligations
            
            Total
            
            
            Less
      than
              one
      year
            
            
            2 –
      3
              years
            
            
            4 –
      5
              years
            
            
            More
      than
              5
      yearsLong-term debt(1)
            
            $
            2,899,538
            
            
            $
            771,345
            
            
            $
            1,121,755
            
            
            $
            880,760
            
            
            $
            125,678Note payable to bank under
      line of credit(2)
            
            
            5,731,548
            
            
            
            -
            
            
            
            5,731,548
            
            
            
            -
            
            
            
            -Interest Expense(3)
            
            
            1,345,767
            
            
            
            726,612
            
            
            
            517,537
            
            
            
            92,534
            
            
            
            9,084Operating leases(4)
            
            
            1,542,263
            
            
            
            510,063
            
            
            
            619,864
            
            
            
            389,836
            
            
            
            22,500Total
            
            $
            11,519,116
            
            
            $
            2,008,020
            
            
            $
            7,990,704
            
            
            $
            1,363,130
            
            
            $
            157,262








1.
            Long-term
      debt represents term loans payable that mature at various dates through
      August 2013.  Long-term debt includes scheduled maturities but
      excludes interest payments.





2.
            Note
      payable to bank under line of credit includes the scheduled maturity on
      July 1, 2008, but excludes variable-rate interest payments.  The
      scheduled maturity does not consider the Company’s ability to draw or pay
      down the line of credit facility prior to the maturity date, or the
      possibility that the maturity date may be extended by negotiations with
      the lender.





3.
            Interest
      expense represents all interest that will become payable on the Company’s
      fixed and floating rate long-term debt obligations.  Interest
      expense assumes that the prime rate remains at the current rate of 8.25%
      and that the Company’s working capital line of credit remains at
      $6,000,000 and is paid on its maturity date of July 1,
    2008.





4.           Operating
leases represent office facilities and various field equipment leased under
non-cancelable operating leases expiring at various dates through
2012.







OFF
BALANCE SHEET ARRANGEMENTS





The
Company has no off balance sheet arrangements at December 31, 2006 or December
31, 2005 that require disclosure under this item.







CRITICAL
ACCOUNTING POLICIES AND ESTIMATES





Management
has identified the following critical accounting policies that affect the
Company's more significant judgments and estimates used in the preparation of
the Company's consolidated financial statements.  The preparation of
the Company's financial statements in conformity with accounting principles
generally accepted in the United States of America requires the Company's
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities.  On an on-going basis, management
evaluates those estimates, including those related to assets held for sale,
valuation allowances on deferred tax assets, revenue recognition, allowance for
doubtful accounts and contingencies and litigation. The Company states these
accounting policies in the notes to the consolidated financial statements and in
relevant sections in this discussion and analysis. These estimates are based on
the information that is currently available to the Company and on various other
assumptions that management believes to be reasonable under the
circumstances.  Actual results could vary from those
estimates.





The
Company believes that the following critical accounting policies affect
significant judgments and estimates used in the preparation of its consolidated
financial statements:





Contracts are predominately short-term
in nature (less than three months) and revenue is recognized as costs are
incurred.  Project costs are generally billed in the month they are
incurred and are shown as current assets.  Revenues recognized in
excess of amounts billed are recorded as an asset.  In the event
interim billings exceed costs and estimated profit, the net amount of deferred
revenue is shown as a current liability.  Estimated losses are
recorded in full when identified.







The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments, which
results in bad debt expense.  Management determines the adequacy of
this allowance by continually evaluating individual customer receivables,
considering the customer's financial condition, credit history and current
economic conditions.  If the financial condition of customers were to
deteriorate, resulting in an impairment of their ability to make payments,
additional allowances may be required.  Additionally, management
estimates a general allowance based on historical charge offs covering other
amounts that may not be collectible.





The
Company maintains a valuation allowance on its deferred tax asset based on the
amount of net operating losses that management believes it will not utilize
prior to the expiration dates of these losses.  Management determines
the adequacy of this allowance by continually evaluating its ongoing
profitability and its ability to generate taxable income in the future
sufficient to utilize the net operating losses.  If the profitability
of the Company were to change, it could effect the amount of net operating
losses that could be utilized and require an adjustment to the valuation
allowance.





The
Company establishes accruals for loss contingencies related to litigation and
claims.  These estimates are prepared using information available to
management at the time of the accrual and at each reporting
period.  Events and circumstances could change requiring management to
revise or adjust amounts accrued for loss contingencies.








8







2006
COMPARED TO 2005





Revenues





During
the year ended December 31, 2006, the Company’s revenues increased 61% to
$35,069,989 as compared to $21,784,096 for the year ended December 31,
2005.





When
comparing 2006 to 2005, the overall increase in project revenue is due to an
increase in the amount of larger projects performed by the
Company.  The Company has made a concerted and planned effort to bid
on larger projects at a lower gross margin percentage in order to grow overall
gross margin dollars.








Project Costs and Gross
Margin





Project
costs for the year ended December 31, 2006 increased 76% to $28,007,851 from
$15,955,533 for the year ended December 31, 2005.  Project costs as a
percentage of revenues was 80% for the year ended December 31, 2006 compared to
73% for the year ended December 31, 2005.  The gross profit margin for
the year ended December 31, 2006 was 20% compared to 27% for the year ended
December 31, 2005.  Gross profit in dollars increased 21% to
$7,062,138 from $5,828,563 in 2005.  Project costs paid to St.
Lawrence Industrial Services, Inc., a related party, amounted to approximately
$1,074,000 in 2006 and $734,000 in 2005.





The
decrease in the gross margin percentage was planned and was due to the
performance of several large projects that were bid at a lower gross margin
percentage than was the Company’s average prior to 2006 in order to increase the
overall gross margin dollars.








Selling, General, and
Administrative Expenses





During
the year ended December 31, 2006, selling, general, and administrative
(“SG&A”) expenses increased 15% to $5,853,744 compared to $5,107,218
reported for the previous year exclusive of a $450,000 accrual for a litigation
reserve in 2005.





SG&A
expenses as a percentage of revenue decreased to 17% for the year ended December
31, 2006 from 23% for the year ended December 31, 2005.





When
comparing 2006 to 2005, the overall increase in operating expenses is primarily
due to inflationary increases in several areas including payroll expense, office
expense and business insurance, as well as the recording of stock compensation
expense.








Provision for Impairment of
Land and Buildings Held for Sale





In
September 2006 the Company recognized a provision for impairment of its land and
buildings held for sale in the amount of $150,000 to adjust the carrying value
of the land and building held for sale to its fair value.  In 2005 an
impairment provision of $100,000 was recorded.  In November 2006, the
Company sold the land and buildings for $700,000.








Operating
Income





As a
result of the factors discussed above, for the year ended December 31, 2006, the
Company reported operating income of $1,058,394 compared to $171,345 for the
previous year.


9








Interest
Expense





Interest
expense increased 60% to $615,361 in 2006 compared to $384,240 in
2005.  The increase in interest expense was primarily due to an
increase in the average outstanding balance on the revolving loan when comparing
the year ended December 31, 2006 with the same period in 2005.  The
increase in interest expense is also due to an increase in the rates paid on the
Company’s floating rate debt that is tied to changes in the prime
rate.  The prime rate increased from 7.25% at December 31, 2005 to
8.25% at December 31, 2006.








Net Income Before Income
Taxes





Net
income before income taxes amounted to $388,938 in 2006 compared to net loss
before income taxes of $242,744 in 2005.





Income Tax
Benefit





The
Company recorded a net income tax expense of $180,965 in 2006 compared to an
income tax benefit of $97,000 in 2005.





Net
Income





Net
Income for the year ended December 31, 2006 was $207 973 or $.02 per share basic
and $.02 per share diluted compared to net loss of $145,744, or $.01 per share
basic and diluted, for the year ended December 31, 2005.








2005
COMPARED TO 2004





Revenues





During
the year ended December 31, 2005, the Company’s revenues increased 20% to
$21,784,096 as compared to $18,170,103 for the year ended December 31,
2004.  The increase in revenue is due to several factors. Revenues
from New York State Department of Environmental Conservation (“NYSDEC”)
increased approximately $2,202,000.  The increased revenue from NYSDEC
is primarily due to one large remediation project in Buffalo, NY that earned
approximately $2,377,000 in revenue.  In addition, total revenue
generated from smaller projects increased as well.  Seven of the nine
branch offices experienced higher revenue in 2005 than in 2004.








Project Costs and Gross
Margin





Project
costs for the year ended December 31, 2005 increased 20% to $15,955,533 from
$13,334,686 for the year ended December 31, 2004.  Project costs as a
percentage of revenues was 73% for the years ended December 31, 2005 and
2004.  The gross profit margin for the years ended December 31, 2005
and 2004 was 27%.  Project costs paid to St. Lawrence Industrial
Services, Inc., a related party, amounted to approximately $734,000 in 2005 and
$838,000 in 2004.





10





Selling, General, and
Administrative Expenses





During
the year ended December 31, 2005, selling, general, and administrative
(“SG&A”) expenses increased 20% to $5,107,218 compared to $4,248,611
reported for the previous year.  SG&A expenses were approximately
23% of project revenue for the years ended December 31, 2005 and December 31,
2004.





When
comparing 2005 to 2004, the overall increase in operating expenses is due to
several factors:





·
            Business
      insurance increased 22% to $403,186.  The increase in insurance
      expense is due to the continuing increase in premiums in the insurance
      market.





·
            Fuel
      expense increased 36% to $646,816.  The increase in fuel expense
      is due to significantly higher fuel prices, additional pieces of
      equipment, and higher utilization of the Company’s
    equipment.





·
            Occupancy
      expense increased 25% to $493,332.  The increase in occupancy
      expense is attributable to new leases entered into for an additional space
      in Waverly, NY and a larger office in Edison, NJ.  In addition,
      heating costs were significantly higher in
2005.





·
            Equipment
      repair and maintenance expense increased 49% to $539,211.  The
      increase in equipment repairs and maintenance was due to the hiring of an
      additional mechanic, the increased size of the equipment fleet, the higher
      average age of the equipment fleet, and an increased effort to maintain
      the fleet in top working condition.








Provision for Impairment of
Land and Buildings Held for Sale





At
December 31, 2005 the Company recognized a provision for impairment of its land
and buildings held for sale in the amount of $100,000 to adjust the carrying
value of the land and building held for sale to $850,000.








Accrued Litigation
Reserve





The
Company recorded an accrued liability of $450,000 at December 31,
2005.  The liability has been recorded to cover potential legal costs
and fees, and also any indemnity, settlement, or other payments necessary to
dispose of a claim against the Company.







Operating
Income





As a
result of the factors discussed above, for the year ended December 31, 2005, the
Company reported operating income of $171,345 compared to $586,806 for the
previous year.





Interest
Expense





Interest
expense increased 51% to $384,240 in 2005 compared to $253,854 in
2004.  The increase in interest expense was primarily due to an
increase in the rates paid on the Company’s floating rate debt that is tied to
changes in the prime rate.  The prime rate increased from 5.25% at
December 31, 2004 to 7.25% at December 31, 2005.  In addition, the
average outstanding balance on the revolving loan and long-term debt increased
when comparing the year ended December 31, 2005 with the same period in
2004.





Net Loss Before Income
Taxes





Net loss
before income taxes amounted to $242,744 in 2005 compared to net income before
income taxes of $332,684 in 2004.








Income Tax
Benefit





The
Company recorded a net income tax benefit of $97,000 in 2005 compared to an
income tax expense of $132,598 in 2004.





Net Loss





Net loss
for the year ended December 31, 2005 was $145,744 or $.012 per share basic &
diluted compared to net income of $200,086, or $.017 per share basic and $.016
diluted, for the year ended December 31, 2004.








11
 ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK





The
Company is exposed to market risk, including changes in interest rates because
of its variable rate debt.  To manage the potential exposure, the
Company enters into various derivative transactions, mainly interest rate
swaps.  The financial impact of these hedging instruments are offset
in part or in whole by corresponding changes in the underlying exposures being
hedged.  The Company does not hold or issue derivative financial
instruments for trading purposes.  Note 9 to the consolidated
financial statements includes a discussion of the Company’s accounting policies
for financial instruments.





Interest
rate swaps are used to hedge a term debt obligation.  Based on the
Company’s overall interest rate exposure as of and during the year ended
December 31, 2006, including derivative and other rate sensitive instruments, a
one percent change in interest rates would increase or decrease interest expense
by approximately $66,000 annually.





The
Company is aware that if the economy were to slow down, the Company’s business
could be affected by other companies closing operations or reducing production,
which could reduce the amount of waste generated or industrial cleaning projects
available.  In order to try to mitigate this market risk, the Company
continues to make every effort to secure more emergency spill response contracts
and long-term environmental remediation and industrial cleaning
projects.





For more
information regarding market risk, see the audited financial statements
submitted under Item 15 of this report.








ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA








The
consolidated financial statements and related financial schedule of the Company
and the report of Dannible & McKee LLP are submitted under Item 15 of this
report.








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





None








ITEM 9a – CONTROLS AND
PROCEDURES








(a)
            Disclosure
      Controls and Procedures.


As of the end of the period covering
this Form 10-K, we evaluated the effectiveness of the design and operation of
our “disclosure controls and procedures”. OP-TECH conducted this evaluation
under the supervision and with the participation of management, including our
Chief Executive Officer Chief Financial Officer.





(i) Definition of
Disclosure Controls and Procedures.


Disclosure controls and procedures are
controls and other procedures that are designed with the objective of ensuring
that information required to be disclosed in our periodic reports filed under
the Exchange Act, such as this report, is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. As
defined by the SEC, such disclosure controls and procedures are also designed
with the objective of ensuring that such information is accumulated and
communicated to our management, including the Chief Executive Officer and Chief
Financial Officer, in such a manner as to allow timely disclosure
decisions.





(ii) Limitations on the Effectiveness of
Disclosure Controls and Procedures and Internal Controls.


OP-TECH recognizes that a system of
disclosure controls and procedures (as well as a system of internal controls),
no matter how well conceived and operated, cannot provide absolute assurance
that the objectives of the system are met. Further, the design of such a system
must reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented in a number of ways. Because of the
inherent limitations in a cost-effective control system, system failures may
occur and not be detected.





(iii) Conclusions with Respect to Our
Evaluation of Disclosure Controls and Procedures.


As
indicated in the Explanatory Note above, the Company restated its December 31,
2006 financial statements as a result of the understatement of certain
liabilities.  Except for this matter,  the  Company's 
Chief  Executive  Officer and Chief Financial  Officer 
determined that, as of the end of the period covered by this report, 
these  controls and  procedures  are adequate and effective in
alerting them in a timely manner to material information relating to the Company
required to be included in the Company's periodic SEC filings.





(b) Changes in
Internal Controls.


There have been no changes in OP-TECH’s
internal controls over financial reporting during the last fiscal quarter of
2006 that has materially affected or is reasonably likely to affect the
Company’s internal control over financial reporting.











ITEM 9b – OTHER
INFORMATION





None














12








PART
III





ITEM
10. DIRECTORS AND OFFICERS OF THE COMPANY








The
following table sets forth certain information about the directors of the
Company, all of whom were unanimously elected at the Annual Meeting of
Stockholders of the registrant on May 4, 2006 for a term of one
year.





Each
director has served continuously since he was first elected.





The Board
of Directors held five meetings during the last calendar year.  All of
the directors attended more than 75% of the total number of meetings held by the
Board of Directors.








Name,
      Age
              Principal Occupation
            Year
      First
              Elected
            Certain Other
InformationRobert
      J. Berger (60)
              Director
      and Co-Chairman of the Board
            1998
            Mr.
      Berger has served in his present position as Director since November 1998,
      and as Chairman of the Board since February 2000 and as Co-Chairman of the
      Board since January 2007.  Mr. Berger was employed in various
      positions for OnBank from 1978 through March 31, 1998, his last position
      being Senior Vice President, Treasurer, and Chief Financial
      Officer.  From April through August 1998, he served as
      consultant to M&T Bancorp. pursuant to its merger agreement with
      OnBank.  From August 1998 through 2004, he was an Adjunct
      Professor at LeMoyne College in Syracuse, New York.  From August
      1998 through June 2002, he served as Director of the Madden Institute of
      Business Education at LeMoyne College.  Mr. Berger is also
      Chairman, President, and Chief Executive Officer of St. Lawrence
      Industrial Services, Inc.Richard
      Messina (44)
              Director
      and Co-Chairman of the Board
            2005
            Mr.
      Messina was elected to the Board in November 2005 and elected Co-Chairman
      of the Board in January 2007.  Mr. Messina founded The Benchmark
      Company, LLC, a securities broker-dealer, in 1988.  Benchmark
      operates out of offices in New York, Boston and Denver and is primarily
      engaged in equity research, sales, and trading on behalf of institutional
      clients.  Mr. Messina currently serves as Co-Chief Executive
      Officer of Benchmark.Cornelius
      B. Murphy, Jr. (62)
              Director
            1991
            Dr.
      Murphy has served in his current position since December
      1991.  Dr. Murphy has been a director of O’Brien & Gere
      Limited since 1985.  Dr. Murphy also served as President of
      O’Brien & Gere Limited from December 1997 to May 1999 and Chairman of
      the Board of O’Brien & Gere Engineers from January 1993 to December
      1998.  Dr. Murphy currently serves as President of the State
      University of New York College of Environmental Science and Forestry,
      which is located in Syracuse, New York.Richard
      L. Elander (65)
              Director
            1991
            Mr.
      Elander has served in his present position as a Director since November of
      1991. Mr. Elander currently serves as the Commissioner of the Onondaga
      County Department of Water Environment Protection.Steven
      A. Sanders (61)
              Director
            1991
            Mr.
      Sanders has served in his present position as a Director since December
      1991.  Since January 1, 2004, he has been of counsel to the law
      firm of Rubin, Bailin, Ortoli, LLP.  From January 1, 2001 to
      December 31, 2003, he was counsel to the law firm of Spitzer & Feldman
      PC.  Mr. Sanders served as a partner in the law firm of Beckman,
      Millman & Sanders LLP from October 1997 to December 2000.





George
      W. Lee, Jr. (58)
              Director
            2002
            Mr.
      Lee was elected to the Board in December 2002.  Mr. Lee
      co-founded Blasland, Bouck and Lee, Inc., an Engineering News Record top
      100 worldwide engineering and scientific services company in
      1984.  He served in various capacities in this firm, including
      Executive VP, Director of Marketing and Director of Health and Safety from
      1984 to 1994.  Mr. Lee served on the Board of Directors of
      Blasland, Bouck and Lee, Inc. from 1984 to 2005.  Since 1984 Mr.
      Lee has been active as a consultant to new business ventures involved in
      professional development and wastewater treatment.  In October
      2005 Mr. Lee joined Pyramid Brokerage of Central New York as a commercial
      real estate sales agent.Richard
      Jacobson (43)
              Director
            2006
            Mr.
      Jacobson was elected to the Board in February 2006.  Mr.
      Jacobson is currently a Senior Managing Director with Stern
      Capital.  From 1999 to 2003 he was a Vice President and Managing
      Director in the merchant banking group of Indosuez
      Capital.  From 1997 to 1999 he was a Vice President in the
      leveraged finance group of SG Cowen.  From 1994 to 1997 he was
      an associate in the leveraged finance group of Chemical Securities,
      Inc.  Mr. Jacobson began his career as an attorney for the law
      firm of Jacobs, Persinger and Parker.





13


INDEPENDENCE





The Board
recognizes the importance of director independence.  Under the rules
of the New York Stock Exchange, to be considered independent, the Board must
determine that a director does not have a direct or indirect material
relationship with the Company.  Moreover, a director will not be
independent if, within the preceding three (3) years: (i) the director was
employed by the company or receives $25,000 per year in direct compensation from
the company, other than director and committee fees or other forms of deferred
compensation for prior service, (ii) the director was  partner of or
employed by the company’s independent auditor, (iii) the director is part of an
interlocking directorate in which an executive officer of the company serves on
the compensation committee of another company that employs the director, (iv)
the director is an executive officer or employee of another company that makes
payments to, or receives payments from, the company for property or services in
an amount which, in any single fiscal year, exceeds the greater
of  $100,000 or 2% of such other company’s consolidated gross
revenues, (v) or the immediate family member in any of the categories in (i) –
(iv) above.





The Board
has determined that six (6) of the company’s seven (7) directors are independent
under these standards.  As a result of Director Berger’s ownership of
St. Lawrence Industrial Services Corp., he is not considered to have independent
status.  Mr. Berger does serve on the Compensation committee based
upon his prior business experience and the fact that he is a holder of almost
ten percent (10%) of the outstanding shares of the company’s stock.








RELATED
PARTY TRANSACTION REVIEW





The Board
has adopted a policy concerning the review, approval and monitoring of
transactions involving the Company and “related persons” (directors and
executive officers or their immediate family members, or shareholders owning
five percent (5%) or greater of the Company’s outstanding
shares).  The policy covers any transaction exceeding $1,000 in which
the related person has a direct or indirect material
interest.  Related person transactions must be approved in advance by
the Co-chairmen and reported to the Board at next meeting following the
transaction.  The policy is intended to restrict transactions to only
those which are in the best interests of the Company.








AUDIT
COMMITTEE





In
October of 2002, the Company’s Board of Directors formed an Audit Committee (the
“Committee”). The members of the Committee are Messrs. Cornelius Murphy, Richard
Elander, and George Lee. The Committee operates under a written charter adopted
by the Board of Directors.  The Committee held 2 meetings during the
year ended December 31, 2006.  Its duties and responsibilities include
the following:





·
            Provides
      oversight of the financial reporting process and management’s
      responsibility for the integrity, accuracy and objectivity of financial
      reports, and accounting and financial reporting
  practices.


·
            Recommends
      to the Board the appointment of the Company’s independent registered
      accounting firm.


·
            Provides
      oversight of the adequacy of the Company’s system of internal
      controls.


·
            Provides
      oversight of management practices relating to ethical considerations and
      business conduct, including compliance with laws and
      regulations.





The
Committee has met and held discussions with the Chief Financial Officer and the
Company’s independent accountants, Dannible & McKee, LLP, regarding audit
activities. Management has the primary responsibility for the Company’s systems
of internal controls and the overall financial reporting process.  The
independent accountants are responsible for performing an independent audit of
the Company’s consolidated financial statements in accordance with auditing
standards of the Public Company Accounting Oversight Board (United States), and
to issue a report thereon.  The Committee’s responsibility is to
monitor and oversee these processes.  However, the members of the
Committee are not certified public accountants, professional auditors or experts
in the fields of accounting and auditing and rely, without independent
verification, on the information provided to them and on the representations
made by management and the independent accountants.





The
Committee recommended to the Board of Directors the appointment of Dannible
& McKee, LLP as the Company’s independent accountants for the year 2006, as
ratified by shareholders.  The Company’s independent accountants
provided to the Committee the written disclosure required by Independence
Standards Board Standard No. 1 (Independence Discussions with Audit Committees),
and the Committee discussed with the independent accountants that firm’s
independence.





Management
represented to the Committee that the Company’s consolidated financial
statements were prepared in accordance with generally accepted accounting
principles.  The Committee has reviewed and discussed the consolidated
financial statements with management and the independent
accountants.  The Committee discussed with the independent accountants
matters required to be discussed by Statement on Auditing Standards No. 61
(Communication with Audit Committees) as currently in effect.  Based
on these discussions and reviews, the Committee recommended that the Board of
Directors include the audited consolidated financial statements in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2006 for filing with
the Securities and Exchange Commission.





The
Committee does not have a financial expert.  Due to the small size of
the Company and lack of financial complexity, the Committee does not anticipate
adding a financial expert.





14





REPORT
OF AUDIT COMMITTEE





The Audit
Committee reviews the company’s financial reporting process on behalf of the
Board.  Management has the primary responsibility for establishing and
maintaining adequate internal financial controllership, for preparing the
financial statements and for the public reporting process.  Dannible
& McKee, LLP, our company’s independent auditor for 2006, is responsible for
expressing an opinion on the conformity of the company’s audited financial
statements with generally accepted accounting principles.





In this
context, the committee has reviewed and discussed with management and Dannible
& McKee, LLP the audited financial statements for the year ended December
31, 2006.  The committee has discussed with Dannible & McKee, LLP
the matters that are required to be discussed by Statement on auditing Standards
No. 61 (Communication with Audit committees).  Dannible & McKee,
LLP has provided to the committee the written disclosures and the letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees), and the committee has discussed with
Dannible & McKee, LLP that firm’s independence.  The committee has
concluded that Dannible & McKee, LLP’s provision of audit and non-audit
services to the company is compatible with Dannible & McKee, LLP’s
independence.





Based on
the considerations and discussions referred to above, the committee recommended
to the Board of Directors that the audited financial statements for the year
ended December 31, 2006 be included in the Annual Report on form 10-K for
2006.  This report is provided by the following independent directors,
who comprise the committee:





Cornelius Murphy, PhD
(Chairman)


Richard Elander


George Lee








EXECUTIVE
OFFICERS OF THE COMPANY





Name
            Age
            Position HeldCharles
      B. Morgan
            53
            Chief
      Executive OfficerChristopher
      J. Polimino
            41
            PresidentDouglas
      R. Lee
            36
            Chief
      Financial Officer & Treasurer





Mr.
Morgan was named Chief Executive Officer (“CEO”) in November 2006.  He
has been with the Company since January of 2002 and has previously served as
Executive Vice President and Chief Operating Officer.  Prior to
joining OP-TECH, Mr. Morgan served as a Vice President with the firm of Camp,
Dresser and McKee, an Engineering News Record top 20, Boston, MA based
consulting, engineering, construction and operating firm.





Mr.
Polimino has been President of the Company since January 2000.  He has
been with the Company since December of 1994 and has previously served as Chief
Executive Officer, Executive Vice President, General Manager, and
Controller.





Mr. Lee
was named Chief Financial Officer (“CFO”) in August 2002 and Treasurer in
December 2001, and has been Controller of the Company since March
2001.  Mr. Lee is an inactive Certified Public Accountant in New York
State.  He previously worked as an Auditor for a public accounting
firm from 1993 to 1999, and as Controller for a manufacturing and retail company
from 1999 to February 2001.














CODE
OF ETHICS FOR SENIOR OFFICERS





The
Company has adopted a code of ethics that applies to its senior executive and
financial officers.  The Code of Ethics for senior officers is
included in Exhibit 14.





15





ITEM
11. EXECUTIVE COMPENSATION





A.
      Introduction




The
executive officer compensation information in this section is presented in a new
format this year as required by revised executive compensation disclosure
rules adopted by the Securities and Exchange Commission (“SEC”) in
August 2006. The new format includes a Compensation Discussion and Analysis
or “CD&A” section that explains the Company’s executive officer compensation
policy, the material elements of the compensation paid to the Company’s
executive officers under the policy and how the Company determined the amount
paid.




Several
disclosure tables follow the CD&A. The first table, the Summary Compensation
Table, provides a summary of the total compensation earned by the Company’s
principal executive officer, principal financial officer and the most highly
compensated executive officers other than the principal executive officer and
principal financial officer (the “named executives”). The tables following the
Summary Compensation Table provide additional information about the elements of
compensation presented in the Summary Compensation Table.









B.
      Compensation Committee




The
Compensation Committee of the Board of Directors reviews and administers the
Company’s compensation policies and practices for the executive officers of the
Company. The Compensation Committee is currently comprised of Dr. Murphy, Mr.
Messina and Mr. Berger, all of whom are nonemployee directors.  The
Company’s financial accounting group supports the Compensation Committee’s work
by providing information reports to the Compensation Committee when
requested.  The Committee’s authority is not set out in a
charter.  The Committee has not delegated authority and has not hired
compensation consultants.









C.
      Compensation Discussion and
Analysis




Compensation
      Philosophy




The
Compensation Committee has adopted an executive compensation policy that rewards
executives if the Company achieves its operational, financial and strategic
goals and for building shareholder value.  The material elements of
the total compensation which is considered for executives each year under the
Company’s policy are (i) base salary, (ii) annual cash bonus, (iii)
stock-based awards, and (iv) retirement, health and welfare and other
benefits.




The
Compensation Committee intends for the compensation earned by executive officers
to be commensurate with performance and competitive with the compensation paid
to executives at comparable companies.   The Compensation
Committee has not engaged in any benchmarking of total compensation or any
material element thereof.  The named executive officers do not play a
role in the compensation setting process other than negotiating employment
agreements on their own behalf.




Base
      Salaries




Base
salaries provide a baseline level of compensation to executive officers. Base
salaries are not linked to the performance of the Company, because they are
intended to compensate executives for carrying out the day-to-day duties and
responsibilities of their positions.




The
Compensation Committee reviews and adjusts base salary levels in
January each year. During the review and adjustment process, the
Compensation Committee considers:




·
            individual
      performance;




·
            the
      duties and responsibilities of each executive officer
      position;




·
            the
      relationship of executive officer pay to the base salaries of other
      employees of the Company; and




·
            whether
      the base salary levels are competitive when compared to compensation paid
      to executives at comparable
companies.




The Board
of Directors increased the base salaries of all the named executives for 2006 by
3%.




Annual
      Cash Bonus Awards




The
Compensation Committee also considers bonus awards to the named executives at
its January meeting each year. In general, the Committee does not award bonuses
to executive officers under a pre-established plan or formula. Instead, the
Committee makes bonus awards based on its review of the individual performance
of the executives and the financial performance of the Company during the
preceding year. The Committee believes that awarding bonuses in this manner
keeps executives focused on making decisions that are in the long-term best
interests of the Company and its shareholders and not for the purpose of
achieving a pre-established performance level over a shorter term.




At its
January 2007 meeting, the Compensation Committee made cash bonus awards to
the named executives for 2006 in the amounts shown in the Summary Compensation
Table that follows this CD&A.




Stock-Based
      Awards






The
Compensation Committee follows procedures that are substantially similar to the
bonus award procedures for making stock-based awards to executive
officers.  The 2002 Omnibus Plan (“Omnibus Plan”) maintained by the
Company is intended to promote the growth and general prosperity of the Company
by offering incentives to its key employees who are primarily responsible for
the growth of the Company and to attract and retain qualified
employees.  Awards granted under the Plan may be (a) Stock Options
which may be designated as Incentive Stock Options intended to qualify under
Section 422 of the Internal Revenue Code of 1986, or Nonqualified Stock Options
(“NQSO’s) not intended to so qualify; (b) stock appreciation rights; (c)
restricted stock awards; (d) performance awards; or (e) other forms of
stock-based incentive awards. The shares of stock with respect to which the
Awards may be granted shall be the common stock, par value at $0.01, of the
Company (“Common Stock").






All
stock-based awards are made under the Company’s Omnibus Plan.  The
number of shares included in stock-based awards is not determined under a
pre-established formula. Instead, as is the case with bonus awards, all
stock-based awards are discretionary based on the Committee’s review of the
individual performance of the executives and the financial performance of the
Company during the preceding year.




Under the
Omnibus Plan, on January 26, 2005 the Company granted 369,000 NQSO’s, of which
160,000 were granted to named executives.









Retirement
      and Other Benefits




The
Company sponsors the OP-TECH Environmental Services 401(k) Plan (the “Plan”), a
tax-qualified Code Section 401(k) retirement savings plan, for the
benefit of all of its employees, including the named executives. The Plan
encourages saving for retirement by enabling participants to save on a pre-tax
basis and by providing Company matching contributions equal to 25% of the first
6% that each employee contributes to the Savings Plan.




None of
the named executives receive perquisites whose aggregate value exceeds $10,000
annually.







16


Post
      Termination of Employment Benefits




The
Company has not entered into employment agreements with any executive officers
that provide severance or other benefits following their resignation,
termination, retirement, death or disability, except for agreements with Mr.
Polimino and Mr. Lee that provide severance benefits in the event of a
termination of their employment one year prior to or one year following a change
of control of the Company, and an agreement with Mr. Morgan that provides
severance benefits if seventy-five percent of the common stock or assets of the
Company is sold.




All named
executives signed employment agreements (the “Agreements”) on January 1,
2005.  The Agreements were approved by the Board of Directors who were
acting as the Compensation Committee prior to the formation of the Compensation
Committee.  The original term of the Agreements was through December
31, 2005, however the term was subsequently renewed through March 31,
2007.  The Agreements stipulate that they shall be automatically
renewed on a year-to-year basis unless either party elects not to renew the
Agreement upon not less than thirty (30) days written notice to the other, given
prior to the end of the renewal term.




The
Company elected not to renew the Agreements of all named executives by notice
given on February 27, 2007.  Therefore, the Agreements will terminate
on March 31, 2007.  Replacement Agreements which were approved by the
Compensation Committee have been presented to all named
executives.  Mr. Morgan signed a Replacement Agreement (the
“Replacement Agreement”) on March 13, 2007.  As of March 23, 2007, Mr.
Polimino and Mr. Lee have not signed Replacement Agreements.




The
Agreements stipulate that if the named executive terminates his employment for
Good Reason, as defined in the Agreements, or the Agreement is terminated by the
Company prior to the expiration of the Employment Period or any renewal term for
a reason other than cause, or if the Company elects not to renew the term of the
Agreement at any renewal date and a change in control of the Company occurs
within one year after the expiration of the employment period or any renewal
term, then the Company shall pay Executive a severance in a lump sum on the
fifth day following the date of termination or the first anniversary of the
expiration of the term of the Agreement.




The
severance amount shall include the following:


·
            Executive’s
      full base salary through the date of termination at the rate in effect at
      the time the notice of termination was
given.


·
            In
      lieu of any further salary payments to Executive for periods subsequent to
      the date of termination, a lump sum cash payment amount that differs for
      each named executive.  See table below under the heading “Gross
      Change of Control Benefit”.


·
            A
      lump sum cash payment equal to one times the amount of matching
      contribution paid by the Company for the 401(k) Plan for the benefit of
      the named executive during the calendar year immediately preceding the
      executive’s date of termination.  See table below under the
      heading “401(k) Matching
Contribution”.


·
            All
      legal fees and expenses incurred by the executive as a result of such
      termination, including all such fees and expenses incurred in contesting
      or disputing any such termination or in seeking to obtain or enforce any
      right or benefit provided by this Agreement, provided that the Executive
      is the prevailing party in such
proceedings.


·
            The
      Company shall maintain in full force and effect, for the continued benefit
      of the named executive, all employee benefit plans and programs or
      arrangements in which Executive was entitled to participate immediately
      prior to the date of termination, until the earlier of three years after
      the date of termination or such time as executive secures new full time
      employment and comparable benefits pursuant to that employment have
      commenced.







All of
the agreements provide that if any benefits to be provided under the agreements
would cause any payments or benefits to be considered “parachute payments” that
would be nondeductible by the Company under Section 280G of the Code, the
payments or benefits will be reduced to the maximum permissible deductible
amount under Code Section 280G. Section 280G of the Code defines
“parachute payments” as payments which (i) are compensatory in nature,
(ii) are made to or for the benefit of a shareholder, officer or highly
compensated individual, (iii) are contingent on a change in ownership or
effective control (or change in ownership of a substantial portion of assets) of
a corporation, and (iv) together with other parachute payments have an
aggregate present value of at least 3 times the average annual compensation
earned by the recipient of the payment over the 5 years preceding the date of
the change in control.




The
following table shows the cash amounts that would be payable to Mr. Polimino and
Mr. Lee if replacement agreements are not agreed to and a change of control of
the Company occurs on or before March 31, 2008.




Gross
              Change
      of Control
              Benefit
              Payable under
              the 
      Agreements
            
            401(k)
      Matching Contribution
            
            
            
            TotalMr. Polimino
            
            
            $
            643,500
            
            
            
            
            $
            2,868
            
            
            
            $
            646,368Mr. Lee
            
            
            $
            214,800
            
            
            
            
            $
            1,464
            
            
            
            $
            216,264







Proposed
Replacement Agreements have been presented to Mr. Lee and Mr. Polimino. As of
March 23, 2007 these proposed replacement agreements are being negotiated and
have not been finalized, and there is no assurance as to whether the replacement
agreements will be agreed to.









Mr.
Morgan signed a Replacement Agreement on March 13, 2007.  The term of
the Replacement Agreement runs through March 30, 2008.  Under the
Replacement Agreement, if seventy-five percent (75%) of the common stock or
assets of the Company is sold, Mr. Morgan and Mr. Polimino, who has not signed
this Replacement agreement as of March 23, 2007, shall be entitled to a sale
fee.  The sale fee shall be based on the total common stock value or
total asset value in the case of an asset sale.  The value, which
shall be finally determined by the Board of Directors, shall not include debt,
holdbacks, escrow funds, earn-outs or similar items.  The sale fee
will be determined on a sliding scale, and the amounts of portions of this sale
fee to be distributed to any other Company employee will be at the discretion of
Mr. Morgan and Mr. Polimino and subject to the final approval of the Board of
Directors.  The sale fee will make up the total compensation to all
employees of the Company in the event of a sale of the Company.




17







D.
      Conclusion




The
Compensation Committee has read the compensation discussion and analysis and has
reviewed all components of the named executives’ compensation, including salary,
bonus, long-term incentive compensation, accumulated realized and unrealized
stock option and restricted stock gains, the dollar value of all perquisites and
other personal benefits.  Based on this review, the Compensation
Committee is of the view that the compensation payable under the Replacement
Agreements with Messrs. Morgan, Polimino and Lee, in the aggregate, is
reasonable and appropriate. As previously noted, Mr. Morgan has signed his
Replacement Agreement while Messrs. Polimino and Lee have not signed their
replacement Agreements.




E.
      Executive Officer Compensation Disclosure
Tables









Summary
Compensation Table




Name and Principal
              Position(s)
              (a)
            Year
              (b)
            
            Salary
              ($)
              (c)
            
            
            Bonus
              ($)
              (d)
            
            
            Stock Awards
              ($)
              (e)
            
            
            Option Awards
              ($)
      (1)
              (f)
            
            
            Change in
              Pension value
              and Nonqualified
              Deferred
              Compensation
              Earnings
              (h)
            
            
            All Other
              Compensation
              ($)
      (2)
              (i)
            
            
            Total
              ($)
              (j)Christopher
      J. Polimino
            2006
            
            $
            191,200
            
            
            $
            17,500
            
            
            $
            0
            
            
            $
            16,000
            
            
            $
            0
            
            
            $
            2,868
            
            
            $
            227,568President
            2005
            
            $
            185,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            2,775
            
            
            $
            187,7752004
            
            $
            175,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            2,625
            
            
            $
            177,625Charles
      B. Morgan
            2006
            
            $
            148,500
            
            
            $
            17,500
            
            
            $
            0
            
            
            $
            11,666
            
            
            $
            0
            
            
            $
            2,228
            
            
            $
            179,894Chief
      Executive Officer
            2005
            
            $
            145,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            2,175
            
            
            $
            147,1752004
            
            $
            140,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            2,100
            
            
            $
            142,100Douglas
      R. Lee
            2006
            
            $
            80,000
            
            
            $
            10,000
            
            
            $
            0
            
            
            $
            11,666
            
            
            $
            0
            
            
            $
            1,200
            
            
            $
            102,866Chief
      Financial Officer
            2005
            
            $
            73,200
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            1,098
            
            
            $
            74,298and
      Treasurer
            2004
            
            $
            69,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0
            
            
            $
            1,035
            
            
            $
            70,035





(1) See
relevant SFAS No. 123R assumptions in Note 2 of the Consolidated Financial
Statements.





(2)
Amounts represent the Company’s matching contribution to the named executive’s
401(k) account.  The aggregate value of the perquisites do not exceed
$10,000 for any of the named executives.





Column g,
Non-Equity Incentive Plan Compensation, is not applicable and is
omitted.










Grants
of Plan-Based Awards Table





Grants of
plan-based awards table is not included since the Company did not grant any
plan-based awards in 2006.





Outstanding
Equity Awards at Fiscal Year-End Table




Option Awards
            
            Stock AwardsName
              (a)
            
            Number of
              Securities
              Underlying
              Unexercised
              Options
              (#) Exercisable
              (b)
            
            Number of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
              (c)
            
            Option
              Exercise Price
              ($)
              (e)
            
            Option
              Expiration
              Date
              (f)
            
            Number of Shares
              or Units
              of Stock
              That Have Not
              Vested
              (#)
              (g)
            Market Value of
              Shares or
              Units of Stock That Have
              Not Vested
              ($)
              (h)Mr. Polimino
            
            
            25,000
            
            
            
            0
            
            
            $
            0.06
            
            
            
            05/21/12
            (1)
            
            
            0
            
            
            
            0100,000
            
            
            
            0
            
            
            $
            0.15
            
            
            
            11/19/13
            (2)20,000
            
            
            
            40,000
            
            
            $
            0.40
            
            
            
            01/26/15
            (3)Mr. Morgan
            
            
            16,667
            
            
            
            0
            
            
            $
            0.06
            
            
            
            05/21/12
            
            
            
            0
            
            
            
            033,333
            
            
            
            0
            
            
            $
            0.15
            
            
            
            11/19/1316,667
            
            
            
            33,333
            
            
            $
            0.40
            
            
            
            01/26/15Mr. Lee
            
            
            13,334
            
            
            
            0
            
            
            $
            0.06
            
            
            
            05/21/12
            
            
            
            0
            
            
            
            050,000
            
            
            
            0
            
            
            $
            0.15
            
            
            
            11/19/1316,667
            
            
            
            33,333
            
            
            $
            0.40
            
            
            
            01/26/15





(1)Stock options vest at the rate of 33-1/3% per year with vesting dates of
5/21/03, 5/21/04 and 5/21/05.




(2)Stock options vest at the rate of 33-1/3% per year with vesting dates of
11/19/04, 11/19/05 and 11/19/06.




(3)Stock options vest at the rate of 33-1/3% per year with vesting
      dates of 1/26/06, 1/26/07 and
1/26/08.









Columns
      d, i and j related to Equity Incentive Plan Awards are not applicable and
      are omitted.









18













Option
Exercises and Stock Vested Table




Option
exercises and stock vested table is not included since no options were exercised
in 2006.






Pension
Benefits Table




Pension
benefits table is not included since the Company does not maintain any qualified
defined benefit plans or supplemental executive retirement plans.








Non-Qualified
Deferred Compensation Table





Non-qualified
deferred compensation table is not included since the Company does not maintain
any plans on a non-qualified basis.






Director
Compensation Table




The
following table summarizes the compensation paid to the Chairman and each
nonemployee director for his or her service to the Board and its committees
during 2006:









Name
              (a)
            
            
            
            Fees
              Earned or
              Paid in
              Cash ($)
              (b)
      (1)
            
            Option Awards
              ($)
              (d)
      (2)
            
            All Other
              Compensation
              ($)
              (g)
            
            Total ($)
              (h)Robert
      J. Berger
            
            
            $
            4,000
            
            
            
            $
            1,833
            
            
            $
            0
            
            
            $
            5,833Richard
      Messina
            
            
            $
            0
            
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0Richard
      L. Elander
            
            
            $
            5,000
            
            
            
            $
            1,833
            
            
            $
            0
            
            
            $
            6,833Cornelius
      B. Murphy, Jr.
            
            
            $
            5,000
            
            
            
            $
            1,833
            
            
            $
            0
            
            
            $
            6,833Steven
      A. Sanders
            
            
            $
            4,000
            
            
            
            $
            1,833
            
            
            $
            0
            
            
            $
            5,833George
      W. Lee
            
            
            $
            5,000
            
            
            
            $
            2,166
            
            
            $
            
            0
            
            
            $
            7,166Richard
      Jacobson
            
            
            $
            4,000
            
            
            
            $
            0
            
            
            $
            0
            
            
            $
            4,000





(1)    
      In 2006 Directors of the Company were paid $1,000 for each Board meeting
      attended and $500 for each sub-committee meeting
      attended.  Richard Messina served as an unpaid Director in
      2006.




(2)     See
relevant SFAS No. 123R assumptions in Note 2 of the Consolidated Financial
Statements.







Column c
(Stock Awards), column e (Non-Equity Incentive Plan Compensation), and column f
(Change in Pension Value and Nonqualified Deferred Compensation Earnings) are
not applicable and are omitted.







Report
of Compensation Committee





The
Compensation committee reviewed and discussed the compensation Discussion and
Analysis with management of the company.  Based on such review and
discussion, the compensation Committee recommended to the Board of Directors
that the Compensation discussion and Analysis be included in the company’s
Annual Report on Form 10-K for the last fiscal year for filing with the
SEC.





Richard Messina (Chairman)


Robert Berger


Cornelius Murphy, Jr.







ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT








The
following table sets forth certain information regarding the beneficial
ownership of the company’s common stock at February 1, 2007 by persons who, to
the knowledge of the Board of Directors, beneficially own more than five percent
of the outstanding shares of common stock of the Corporation.





All
voting power of the Corporation is vested in its common stock.  As of
the close of business on February 1, 2007, 11,748,704 shares of common stock par
value $.01 per share were outstanding.  Each share of common stock is
entitled to one vote.





Name
      and Address of BeneficialOwner
            
            Amount
      and Nature of Beneficial Ownership(1)(2)
            
            Percentage of Class(1)4,208,451(2)
      (3)
            
            33%Richard
      Messina
              40
      Fulton Street, 19th
      Floor
              New
      York, NY 10038Robert
      Berger
              121
      Shirley Rd.
              Syracuse,
      NY 13224
            
            1,171,667
      (4)
            
            9%Jurg
      Walker
              3
      Avenue De La Costa
              Monaco
      98000
            
            1,000,000
            
            8%Kevin
      Eldred
              1007
      Overlook Terrace
              Cazenovia,
      NY 13035
            
            835,000
            
            7%








(1)
            Based
      upon the sum of (a) 11,748,704 shares of common stock outstanding, (b)
      706,016 outstanding, unexercised options to purchase shares pursuant to
      the 2002 Stock Option Plan, and (c) warrants to purchase 480,000 shares
      issued to Summit Capital Associates,
Inc.





(2)
            All
      shareholder’s directly or beneficially own all shares except for Mr.
      Messina who owns 1,343,933 shares directly and 2,864,518 shares
      indirectly.





(3)
            Includes
      480,000 shares issuable upon the exercise of warrants to purchase common
      stock issued to Summit Capital Associates,
Inc.





(4)
            Includes
      options to purchase 13,333 shares of Common
  Stock.








19





The
following table sets forth certain information furnished to the Company
regarding the beneficial ownership of the Company’s common stock at February 1,
2007 by each director and nominee for election as director and each elective
officer. Unless otherwise indicated, the beneficial owner has sole voting and
investment power with respect to such shares of common stock.





Name
      of
              Beneficial Owner
            Number
      of Shares of Common
              Stock Beneficially Owned (3)
      (4)Percentage of ClassRichard
      Messina (1)
            4,208,451
            33%Robert
      J. Berger (1)
            1,171,667
            9%Richard
      L. Elander (1)
            429,565
            3%Steven
      A. Sanders (1)
            45,352
            <1%Cornelius
      B.Murphy, Jr. (1)
            21,424
            <1%George
      W. Lee (1)
            186,666
            1%Richard
      Jacobson (1)
            -0-
            0%Christopher
      J. Polimino (2)
            295,454
            2%Charles
      Morgan (2)
            200,000
            1%Douglas
      R. Lee (2)
            140,000
            <1%All
      Directors as a Group (7 persons)
            6,063,125
            47%








(1)
            Director


(2)
            Officer


(3)
            Includes
      unexercised options to purchase shares of common
  stock:


·Mr.
      Berger
            13,333·Mr.
      Elander
            10,000·Mr.
      Sanders
            13,333·Mr.
      Murphy
            10,000·Mr.
      Polimino
            185,000·Mr.
      GW Lee
            16,667·Mr.
      Morgan
            100,000·Mr.
      DR Lee
            113,334







ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS








Steven A.
Sanders, a director of the Company, is of counsel to Rubin, Bailin, Ortoli, LLP,
which provides professional services to the Company, and it is anticipated that
it will continue to do so.  The cost of these services in 2006 was
approximately $5,000.





The
Company purchases subcontract labor services from St. Lawrence Industrial
Services, Inc., which is owned by Robert J. Berger, a director of the
Company.  The costs for these services amounted to approximately
$1,074,000 in 2006.




ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES








Fees
billed by Dannible & McKee, LLP, the Company’s principal accountants in the
aggregate for each of the last two years were as follows:








2006
            2005Audit
      Fees
            $
      34,500
            $
      31,000Audit
      Related Fees
            $
      27,750
            $
      0Tax
      Fees
            $
      12,975
            $
      14,750











Audit
related fees represent additional internal control related procedures and
inspection of documents as requested by the audit committee.





There
were no other fees billed for services other than those noted
above.





The fees
for tax services represent fees for compliance related to Federal and state tax
return preparation and filing.





The fees
for audit and tax services for 2006 were proposed to the audit committee and
approved by that committee in an engagement letter.  No other services
were provided by the accountants that would require approval by the audit
committee.







20








PART
IV











ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,


AND
REPORTS ON FORM 8-K








Page


(a)
            Financial
      Statements





(1)           Report
of Independent
Accountants                                                                                           F-2


Consolidated Balance Sheets at December
31, 2006 and
2005                                                 F-3


Consolidated Statement of Operations
for the years ended


December 31, 2006, 2005, and
2004                                                                                               F-4


Consolidated Statements of
Shareholders’ Equity for


the years
ended December 31, 2006, 2005, and
2004                                                  F-5


Consolidated Statements of Cash Flows
for the years ended


December 31, 2006, 2005, and
2004                                                                                               F-6


Notes to Consolidated Financial
Statements                                                                              F-7





(2)
            Schedule
      II, Valuation and Qualifying Accounts for the
  Years


Ended
2006, 2005, and
2004                                                                                                            F-12








All other
schedules are omitted because they are not required, are inapplicable, or the
information is otherwise shown in the Financial Statements or notes
thereto.











(b)           Exhibits





10.1
            Stock
      Option Plan - Incorporated herein by reference to
  the


Company’s
Information Statement filed November 6, 2002---


14           Code
of
Ethics                                                                                                                                  E-1


21           Subsidiaries
of the
Registrant                                                                                                       
E-2


31           Certifications                                                                                                                                   
E-3


32           Section
1350
Certifications                                                                                                            
E-5

















OP-TECH
Environmental




Services, Inc. and
Subsidiaries




Consolidated Financial
Statements




December 31, 2006 and
2005
























Independent Registered Accounting
Firm








To the Shareholders and Board of
Directors of


OP-TECH Environmental Services, Inc. and
Subsidiaries





We have audited the accompanying
consolidated balance sheets of OP-TECH Environmental Services, Inc. and
Subsidiaries as of December 31, 2006 and 2005, and the related
consolidated statements of operations, shareholders’ equity and cash flows for
each of the years in the three year period ended December 31,
2006.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.




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




In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of OP-TECH Environmental Services, Inc. and
Subsidiaries as of December 31, 2006 and 2005, and the consolidated
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 2006, in conformity with accounting
principles generally accepted in the United States of
America.




As discussed in Note 2 to the
consolidated financial statements the Company has adopted Financial Accounting
Standards Board Statement No. 123(R) “Share Based Payment” (SFAS 123R) in
2006.




In connection with our audits of the
financial statements referred to above, we audited the financial schedules
listed under Item 15.  In our opinion, these financial schedules, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly in all material respects the information stated
therein.




As
discussed in note 15 to the financial statements, the Company restated its 2006
financial statements for the correction of certain errors that resulted in an
understatement of accrued liabilities and accounts payable as previously
reported at December 31, 2006.














/s/
Dannible & McKee, LLP


Syracuse,
New York





February 27, 2007, except for Note 15
which is as of April 12, 2008













F-2
 
 OP-TECH Environmental Services, Inc. and
Subsidiaries
 
 Consolidated Balance Sheets
 December 31, 200 6 and 200 5




2006
              
              
              2005AssetsCurrent
    assets:Cash (Note
    4)
              
              $
              30,981
              
              
              $
              90,928Accounts receivable, net (Notes 1
      and 5)
              
              
              10,008,186
              
              
              
              5,812,977Costs on uncompleted projects
      applicable to future billings
              
              
              2,984,323
              
              
              
              1,403,292Inventory
              
              
              378,439
              
              
              
              231,088Current portion of deferred tax
      asset
              
              
              354,000
              
              
              
              272,500Prepaid expenses and other current
      assets, net
              
              
              447,759
              
              
              
              395,418Total current
      assets
              
              
              14,203,688
              
              
              
              8,206,203Property and equipment, net (Note
      6)
              
              
              3,216,781
              
              
              
              2,837,340Land and Buildings held for sale
      (Note 7)
              
              
              -
              
              
              
              850,000Deferred tax asset (Note
      11)
              
              
              1,004,800
              
              
              
              1,258,064Other
assets
              
              
              44,898
              
              
              
              34,148Total
Assets
              
              $
              18,470,167
              
              
              $
              13,185,755Liabilities and Shareholders'
      EquityCurrent
      liabilities:Accounts
      payable
              
              $
              4,180,070
              
              
              $
              1,953,688Outstanding checks in excess of
      bank balance (Note 4)
              
              
              149,741
              
              
              
              357,249Billings in excess of costs and
      estimatedprofit on uncompleted
      contracts
              
              
              796,438
              
              
              
              600,705Accrued expenses and other current
      liabilities
              
              
              1,148,549
              
              
              
              450,509Accrued litigation reserve (Note
      8)
              
              
              400,000
              
              
              
              450,000Current portion of long-term debt
      (Note 9)
              
              
              771,345
              
              
              
              466,916Total current
      liabilities
              
              
              7,446,143
              
              
              
              4,279,067Long-term debt, net of current
      portion (Note 9)
              
              
              2,128,193
              
              
              
              2,024,691Note payable to bank under line of
      credit (Note 9)
              
              
              5,731,548
              
              
              
              4,000,000Total
      liabilities
              
              
              15,305,884
              
              
              
              10,303,758Shareholders'
      equity:Common stock, par value $.01 per
      share; authorized20,000,000 shares; 11,748,704 and
      11,745,371 sharesoutstanding as of December 31,
      2006 and 2005, respectively
              
              
              117,487
              
              
              
              117,454Additional paid-in
      capital
              
              
              6,925,581
              
              
              
              6,855,901Accumulated
      deficit
              
              
              (3,898,485
              )
              
              
              (4,106,458
              )Accumulated other comprehensive
      income
              
              
              19,700
              
              
              
              15,100Shareholders' equity,
      net
              
              
              3,164,283
              
              
              
              2,881,997Total Liabilities and
      Shareholders' Equity
              
              $
              18,470,167
              
              
              $
              13,185,755










The
accompanying notes are an integral part of the consolidated financial
statements.
 
 F-3
 
 OP-TECH Environmental Services, Inc. and
Subsidiaries
 
 Consolidated Statements of
Operations
 Years Ended December 31, 200
6 , 200 5 and 200 4





2006
              
              
              2005
              
              
              2004Project billings and
      services
              
              $
              35,069,989
              
              
              $
              21,784,096
              
              
              $
              18,170,103Project
    costs
              
              
              28,007,851
              
              
              
              15,955,533
              
              
              
              13,334,686Gross
margin
              
              
              7,062,138
              
              
              
              5,828,563
              
              
              
              4,835,417Selling, general and
      administrative expenses
              
              
              5,853,744
              
              
              
              5,107,218
              
              
              
              4,248,611Litigation reserve (Note
      8)
              
              
              -
              
              
              
              450,000
              
              
              
              -Provision for impairment of land
      and buildings held for sale (Note 7)
              
              
              150,000
              
              
              
              100,000
              
              
              
              -Operating
      income
              
              
              1,058,394
              
              
              
              171,345
              
              
              
              586,806Other income
      (expense):Interest
      expense
              
              
              (615,361
              )
              
              
              (384,240
              )
              
              
              (253,854
              )Other, net
              
              
              (54,095
              )
              
              
              (29,849
              )
              
              
              (268
              )(669,456
              )
              
              
              (414,089
              )
              
              
              (254,122
              )Net income (loss) before income
      taxes
              
              
              388,938
              
              
              
              (242,744
              )
              
              
              332,684Income tax benefit (expense) (Note
      11)Current
              
              
              (9,201
              )
              
              
              (10,066
              )
              
              
              (13,598
              )Deferred
              
              
              (171,764
              )
              
              
              107,066
              
              
              
              (119,000
              )(180,965
              )
              
              
              97,000
              
              
              
              (132,598
              )Net Income
      (Loss)
              
              $
              207,973
              
              
              $
              (145,744
              )
              
              $
              200,086Earnings (Loss) per common
      share:Basic
              
              $
              0.018
              
              
              $
              (0.012
              )
              
              $
              0.017Diluted
              
              $
              0.017
              
              
              $
              (0.012
              )
              
              $
              0.016Weighted average shares
      outstanding:Basic
              
              
              11,746,476
              
              
              
              11,729,154
              
              
              
              11,849,508Diluted
              
              
              12,325,546
              
              
              
              11,729,154
              
              
              
              12,351,091



















The
accompanying notes are an integral part of the consolidated financial
statements.
 
 F-4
 
 OP-TECH Environmental Services, Inc. and
Subsidiaries
 
 Consolidated Statements of Shareholders’
Equity
 Years Ended December 31, 200
6 , 200 5 and 200 4




AccumulatedAdditional
              
              
              
              
              
              OtherCommon
              
              
              Common
              
              
              Paid-In
              
              
              Accumulated
              
              
              ComprehensiveShares
              
              
              Stock
              
              
              Capital
              
              
              Deficit
              
              
              Income
              
              
              TotalBalance at December 31,
      2003
              
              
              12,606,045
              
              
              $
              126,060
              
              
              $
              7,053,848
              
              
              $
              (4,160,800
              )
              
              $
              -
              
              
              $
              3,019,108Purchase and Retirement of
      1,000,000 Shares
              
              
              (1,000,000
              )
              
              
              (10,000
              )
              
              
              (240,000
              )
              
              
              -
              
              
              
              -
              
              
              
              (250,000
              )Issuance of 3,333
      Shares
              
              
              3,333
              
              
              
              33
              
              
              
              300
              
              
              
              -
              
              
              
              -
              
              
              
              333Issuance of 88,329
      Shares
              
              
              88,329
              
              
              
              883
              
              
              
              4,416
              
              
              
              -
              
              
              
              -
              
              
              
              5,299Tax Benefit of the Exercise of
      Stock Options
              
              
              -
              
              
              
              -
              
              
              
              24,378
              
              
              
              -
              
              
              
              -
              
              
              
              24,378Net Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              200,086
              
              
              
              -
              
              
              
              200,086Balance at December 31,
      2004
              
              
              11,697,707
              
              
              
              116,976
              
              
              
              6,842,942
              
              
              
              (3,960,714
              )
              
              
              -
              
              
              
              2,999,204Issuance of 47,664
      Shares
              
              
              47,664
              
              
              
              478
              
              
              
              5,773
              
              
              
              -
              
              
              
              -
              
              
              
              6,251Tax Benefit of the Exercise of
      Stock Options
              
              
              -
              
              
              
              -
              
              
              
              7,186
              
              
              
              -
              
              
              
              -
              
              
              
              7,186Other Comprehensive
      Income:Change in Fair Value of Cash Flow
      Hedgenet of tax effect of
      $10,000
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              15,100
              
              
              
              15,100Net Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (145,744
              )
              
              
              -
              
              
              
              (145,744
              )Total Comprehensive
      Loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (130,644
              )Balance at December 31,
      2005
              
              
              11,745,371
              
              
              
              117,454
              
              
              
              6,855,901
              
              
              
              (4,106,458
              )
              
              
              15,100
              
              
              
              2,881,997Issuance of  3,333
      Shares
              
              
              3,333
              
              
              
              33
              
              
              
              167
              
              
              
              -
              
              
              
              -
              
              
              
              200Tax Benefit of the Exercise of
      Stock Options
              
              
              -
              
              
              
              -
              
              
              
              900
              
              
              
              -
              
              
              
              -
              
              
              
              900Recognition of Stock Compensation
      Expense
              
              
              -
              
              
              
              -
              
              
              
              68,613
              
              
              
              -
              
              
              
              -
              
              
              
              68,613Other Comprehensive
      Income:
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              -Change in Fair Value of Cash Flow
      Hedgenet of tax effect of
      $2,960
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,600
              
              
              
              4,600Net Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              207,973
              
              
              
              -
              
              
              
              207,973Total Comprehensive
      Income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              212,573Balance at December 31,
      2006
              
              
              11,748,704
              
              
              $
              117,487
              
              
              $
              6,925,581
              
              
              $
              (3,898,485
              )
              
              $
              19,700
              
              
              $
              3,164,283







The
accompanying notes are an integral part of the consolidated financial
statements.
 
 F-5
 
 OP-TECH Environmental Services, Inc. and
Subsidiaries
 
 Consolidated Statements of Cash
Flows
 Years Ended December 31, 200
6, 2005 and 2004




2006
              
              
              2005
              
              
              2004Operating
      activities:Net income
              
              $
              207,973
              
              
              $
              (145,744
              )
              
              $
              200,086Adjustments to reconcile net
      income tonet cash provided by (used in)
      operating activities:Bad debt
      expense
              
              
              62,157
              
              
              
              40,975
              
              
              
              14,689Depreciation and
      amortization
              
              
              610,472
              
              
              
              556,605
              
              
              
              566,567Loss on sale of property and
      equipment
              
              
              49,873
              
              
              
              27,644
              
              
              
              9,964Provision for impairment of land
      and buildings held for sale
              
              
              150,000
              
              
              
              100,000
              
              
              
              -Provision for deferred income
      taxes
              
              
              172,664
              
              
              
              (109,000
              )
              
              
              119,000Provision for stock compensation
      expense
              
              
              68,613
              
              
              
              -
              
              
              
              -(Increase) decrease in operating
      assets andincrease (decrease) in operating
      liabilities:Accounts
      receivable
              
              
              (4,257,366
              )
              
              
              (221,743
              )
              
              
              (2,260,103
              )Costs on uncompleted
      projectsapplicable to future
      billings
              
              
              (1,581,031
              )
              
              
              (524,092
              )
              
              
              (240,687
              )Prepaid expenses, Inventory and
      other assets, net
              
              
              297,030
              
              
              
              127,158
              
              
              
              140,688Billings and estimated profit in
      excessof costs of uncompleted
      contracts
              
              
              195,733
              
              
              
              (495,770
              )
              
              
              380,124Accrued litigation defense
      reserve
              
              
              (50,000
              )
              
              
              450,000
              
              
              
              -Accounts payable and other accrued
      expenses
              
              
              2,924,422
              
              
              
              (374,233
              )
              
              
              1,545,940Net cash provided by (used in)
      operating activities
              
              
              (1,149,460
              )
              
              
              (568,200
              )
              
              
              476,268Investing
      activities:Proceeds from sale of property and
      equipment
              
              
              692,208
              
              
              
              113,000
              
              
              
              -Purchases of property and
      equipment
              
              
              (1,031,994
              )
              
              
              (870,676
              )
              
              
              (582,586
              )Net cash used in investing
      activities
              
              
              (339,786
              )
              
              
              (757,676
              )
              
              
              (582,586
              )Financing
      activities:Proceeds from issuance of common
      stock
              
              
              200
              
              
              
              6,251
              
              
              
              5,632Purchase of common
      stock
              
              
              -
              
              
              
              -
              
              
              
              (250,000
              )Outstanding checks in excess of
      bank balance
              
              
              (207,508
              )
              
              
              357,249
              
              
              
              -Loans from directors and
      officers
              
              
              -
              
              
              
              -
              
              
              
              295,000Repayments of loans to directors
      and officers
              
              
              -
              
              
              
              -
              
              
              
              (22,500
              )Proceeds from notes payable to
      banks andlong-term borrowings, net of
      financing costs
              
              
              16,351,122
              
              
              
              8,133,127
              
              
              
              9,941,564Principal payments on
      currentand long-term
      borrowings
              
              
              (14,714,515
              )
              
              
              (7,181,561
              )
              
              
              (9,819,713
              )Net cash provided by (used in)
      financing activities
              
              
              1,429,299
              
              
              
              1,315,066
              
              
              
              149,983Increase (decrease) in cash and
      cash equivalents
              
              
              (59,947
              )
              
              
              (10,810
              )
              
              
              43,665Cash and cash equivalents at
      beginning of year
              
              
              90,928
              
              
              
              101,738
              
              
              
              58,073Cash and Cash Equivalents at End
      of Year
              
              $
              30,981
              
              
              $
              90,928
              
              
              $
              101,738Non-cash
    items:Equipment purchased
      throughbank and other financing
      sources
              
              $
              -
              
              
              $
              198,182
              
              
              $
              412,349Non-cash financing of
      insurance
              
              $
              507,472
              
              
              $
              -
              
              
              $
              403,902







The
accompanying notes are an integral part of the consolidated financial
statements.
 
 F-6
 
 OP-TECH Environmental Services, Inc. and
Subsidiaries
 
 Notes to Consolidated Financial
Statements





1.
            Summary of Significant Accounting
      Policies




Basis of
Presentation




OP-TECH
Environmental Services, Inc. and Subsidiaries (the “Company”), a Delaware
corporation headquartered in Syracuse, New York, provides comprehensive
environmental and industrial services predominately in New York, New England,
Pennsylvania, New Jersey, and Ohio.  The Company performs industrial
cleaning of hazardous and non-hazardous materials and provides varying services
relating to plant facility closure, including interior and exterior demolition
and asbestos removal.  In addition, the Company provides remediation
services for sites contaminated by hazardous and non-hazardous materials and
provides 24-hour emergency spill response services.  The Company’s
revenues are derived from state agencies, industrial companies and
municipalities facing complex environmental clean-up problems associated with
hazardous and non-hazardous materials as required by various governmental
agencies.  The Company’s services include assessing the regulatory,
technical, and construction aspects of the environmental issue, and performing
the necessary remediation activities.  The Company seeks to provide
its clients with remedial solutions which integrate the various aspects of a
project and are well-documented, practical, cost effective, and acceptable to
regulatory agencies and the public.





OP-TECH AVIX, Inc. (AVIX) is a
subsidiary of OP-TECH Environmental Services, Inc. formed in January 2002 to
pursue and engage in diversified lines of business.  In The fourth
quarter of 2004 this subsidiary became inactive and the Company is no longer
pursuing the lines of business that AVIX performed.  Therefore,
separate segment information is no longer presented in the Financial
Statements.




OP-TECH Environmental Services, Ltd. is
an inactive Canadian subsidiary of OP-TECH Environmental Services,
Inc.




J.O. Technologies is a partnership that
is owned 50% by the Company.  The partnership activities are not
material to the operations of the Company.




Principles of
Consolidation




The accompanying consolidated financial
statements include the accounts of OP-TECH Environmental Services, Inc. and its
two wholly-owned subsidiaries (collectively, the “Company”).  All
significant intercompany accounts and transactions have been eliminated in
consolidation.




Use of Estimates




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




Project Income
Recognition




Contracts are predominately short-term
in nature (less than three months), and revenue is recognized as costs are
incurred.  Project costs include all direct material, equipment, and
labor costs and those indirect costs related to contract
performance.




Revenues recognized in excess of amounts
billed are recorded as a current asset.  Deferred revenue resulting
from billings that exceed costs and estimated profit is reflected as a current
liability.




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




Normal delays relating to receipt of
job-related vendor invoices, payroll processing, and billing compilation
typically cause customer invoices relating to revenue earned in a certain month
to be mailed in the first two weeks of the following month.  Such
invoices mailed after year-end that are included in December 31, 2006 and
December 31, 2005 accounts receivable are approximately $3,260,000 and
$1,916,000, respectively.




Concentration of Business Risk -
Significant Customers




Sales to one customer, other than an
affiliated party, amounted to approximately $8,509,000, $6,047,000, and
$3,845,000 in 2006, 2005 and 2004, respectively.  Accounts receivable
at December 31, 2006 and 2005 include $1,718,316 and $1,955,000
respectively, from this customer.




Receivables and Credit
Policies




Accounts receivable are unsecured
customer obligations due under normal trade terms requiring payment within 30
days from the invoice date.  Interest is not accrued on past-due
invoices.  Accounts receivable are stated at the amount billed to the
customer. Payments of accounts receivable are allocated to the specific invoices
identified on the customer’s remittance advice.




The carrying amount of accounts
receivable is reduced by a valuation allowance that represents management’s best
estimate of the amounts that will not be collected.  Management
individually reviews all accounts receivable balances that exceed 90 days from
invoice date and, based on assessment of current creditworthiness, estimates the
portion, if any, of the balance that will not be
collected.  Additionally, management estimates a general allowance
based on historical chargeoffs covering other amounts that may not be
collectible.




Inventory




Inventories, consisting of spill
response and remediation supplies and materials, are stated at the lower of cost
or market value.  Cost is determined using the first-in, first-out
method.




Property and
Equipment




Property and equipment are stated at
cost.  Expenditures for repairs and maintenance are charged to expense
as incurred.  Depreciation of assets including those recorded under
capital leases is provided for using the straight-line method over useful lives
typically ranging from 3 to 15 years and 40 years for
buildings.




Financial
Instruments




The Company maintains various financial
instruments in the ordinary course of business, which consist of cash, accounts
receivable and payable, notes payable, long-term debt and a line of
credit.  The carrying value of the Company’s financial instruments
approximates their fair value at December 31, 2006 and 2005.  The fair
values of fixed rate notes payable and long-term debt are determined using
incremental borrowing rates available to the Company for similar types of
borrowings.  All other financial instruments are short-term in nature
and their fair values are based on the amounts that they have been or will be
settled for subsequent to the balance sheet date.




Impact of Recently Issued Statements




In July 2006 the Financial Accounting
Standards Board issued FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes”.  The interpretation is required to be adopted in the
first quarter of 2007.  The Company does not anticipate any
significant impact on its financial position, results of operations or cash
flows as a result of adopting the interpretation.




Income Taxes




The Company provides for income taxes in
accordance with the liability method as set forth in Statement of Financial
Accounting Standards (“SFAS”) No. 109 "Accounting for Income
Taxes".  Under the liability method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that may be in effect in the years in which the
differences are expected to reverse.




F-7


2.Stock Based Compensationand Earnings Per
Share




Effective
January 1, 2006 the Company adopted Financial Accounting Standards Board
Statement No. 123(R) “Share Based Payment”.  The Company has chosen to
adopt this statement using the modified prospective
application.  Under this method the Company will recognize the fair
value of unvested options granted in prior periods as compensation over the
remaining vesting period or requisite service period using the straight line
attribution method.  The effect in 2006 of adopting the statement was
to reduce income before taxes by $68,613, net income by $41,100, and basic and
fully diluted earnings per share by $.004 and $.003,
respectively.  Prior to 2006 the Company applied APB Opinion No. 25
and related interpretations in accounting for its stock
options.  Accordingly no compensation cost was recognized for the
options issued.  The following table sets forth the Company’s net
income and earnings per share had the provisions of Statement No. 123(R) been
applied in the fiscal years ended December 31, 2005 and 2004.


2005
              
              
              2004Net
      income (loss): As reported
              
              $
              (145,744
              )
              
              $
              200,086Deduct:
      Total stock-based employee compensation expense determined under fair
      value based method for all awards, net of related tax
    effects
              
              
              52,000
              
              
              
              14,000Pro
      forma net income (loss)
              
              $
              (197,744
              )
              
              $
              186,086Basic
      earnings (loss) per share:As reported
              
              $
              (0.012
              )
              
              $
              0.017Pro forma
              
              $
              (0.017
              )
              
              $
              0.016Diluted
      earnings (loss) per share:As reported
              
              $
              (0.012
              )
              
              $
              0.016Pro forma
              
              $
              (0.017
              )
              
              $
              0.015


Basic
earnings per share is computed by dividing net income by the weighted average
shares outstanding for the period, which were 11,746,476, 11,729,154, and
11,849,508 for the years ended December 31, 2006, 2005 and 2004,
respectively.  Diluted earnings per share includes the potentially
dilutive effect of common stock issuable upon conversion of stock options or
warrants.





Warrants
were issued to a financial advisor in May 2002 to purchase 480,000 shares of
common stock at $0.066 per share, expiring in May 2010.





On March 16, 2004 the Company purchased
and retired 1,000,000 shares of its common stock from O’Brien & Gere Limited
for $.25 per share, or $250,000.




3.
            Related Party
      Transactions




The Company purchases subcontract labor
services from St. Lawrence Industrial Services, Inc. which is owned by a
director of the Company.  The cost for these services amounted
to approximately $1,074,000, $734,000, and $838,000 in 2006, 2005 and 2004,
respectively.





A
director of the Company is of counsel to Rubin, Bailen, Ortoli, Mayer &
Baker, LLP, which provides professional services to the Company.  The
cost for these services amounted to approximately $5,000, $5,000, and $3,000 in
2006, 2005 and 2004, respectively.





4.      Cash





Using a
zero balance account, the Company voluntarily applies all available cash in the
Company’s operating account to pay down the Company’s note payable to bank under
the line of credit (Note 9) nightly.  From time to time cash balances
held at the Financial Institution may exceed the Federal Deposit Insurance
Corporation limit of $100,000.





5.
            Accounts
      Receivable





Accounts
receivable at December 31, 2006 and 2005 consists of:


2006
              
              
              2005Accounts
      Receivable, gross
              
              $
              10,122,510
              
              
              $
              5,917,140Allowance
      for uncollectible receivables
              
              
              (114,324
              )
              
              
              (104,163
              )Accounts
      Receivable, net
              
              $
              10,008,186
              
              
              $
              5,812,977








All customer accounts receivable
collateralize the Company’s outstanding loans with its primary lender (see Note
9).







6.
            Property, Plant and
      Equipment




Property, plant and equipment at
December 31, 2006 and 2005 consist of:




2006
              
              
              2005Furniture
      and fixtures
              
              $
              21,758
              
              
              $
              21,758Buildings
              
              
              185,741
              
              
              
              255,658Office
      machines
              
              
              233,056
              
              
              
              233,056Field
      equipment
              
              
              5,987,377
              
              
              
              4,969,7956,427,932
              
              
              
              5,480,267Less:
      Accumulated depreciation
              
              
              (3,211,151
              )
              
              
              (2,642,927
              )$ 3,216,781
              
              
              $
              2,837,340
  Depreciation
expense approximated $610,000, $557,000, and $567,000 for 2006, 2005 and 2004,
respectively.






F-8




7.
            Land and Buildings Held for
      Sale




On November 17, 2006 The Company sold
approximately 14 acres of land, and buildings thereon, which it owned on the St.
Lawrence River in Massena, NY for $692,208 and recorded a loss on sale of
property in the amount of $199,873, which included a $150,000 impairment loss
recognized in the quarter ended September 30, 2006.  An impairment
loss of $100,000 was recognized in 2005.









8.
            Accrued LitigationReserve




The
Company has accrued a $400,000 liability at December 31, 2006.  The
liability has been recorded to cover potential legal costs and fees, and also
any indemnity, settlement, or other payments necessary to dispose of this claim
against the Company.  The reserve will be reduced by legal fees or
other costs paid.









9.
            Long-Term Debt
      Obligations




Long-term debt at December 31, 2006
and 2005 consists of:





2006
              
              
              2005Note
      payable to bank under line of credit. Due July 1, 2008.
(a)
              
              $
              5,731,548
              
              
              $
              4,000,000Term
      Loan due in monthly installment payments of $24,848 plus interest at prime
      plus .75%, hedged by an interest rate swap, (a)
              
              
              1,471,673
              
              
              
              1,777,149Term
      Loans due in monthly installment payments aggregating $13,223 and $3,044
      at December 31, 2006 and 2005 plus interest at prime plus .75%.
      (a)
              
              
              908,205
              
              
              
              246,571Insurance
      Financing Note, due in monthly installment payments of $46,134, plus
      interest at 5.94%, collateralized by the assignment of unearned
      premiums
              
              
              184,535Equipment
      Notes, due in monthly installment payments aggregating $12,538 at December
      31, 2005 and 2004, including interest at rates ranging from 4.9% to 7.9%,
      collateralized by equipment with a carrying value of approximately
      $400,000 and $500,000 at December 31, 2006 and 2005.
              
              
              335,124
              
              
              
              456,877Equipment
      Notes, due in monthly installment payments aggregating $1,628 at December
      31,2005, with 0% interest, collateralized by equipment with a carrying
      value of approximately $20,000 at December 31,2005.
              
              
              
              
              
              
              11,010Less:
      Current portion
              
              
              2,899,537
              
              
              
              2,491,607(771,345
              )
              
              
              (466,916
              )$
              2,128,193
              
              
              $
              2,024,691






(a)
            The
      Company has entered into financing agreements (the “Agreements”) with a
      lender (“Primary Lender”).




As of
December 31, 2006 the Agreements include a Line of Credit note which provided
for borrowings up to $6,000,000 to be used to provide working capital and
expires on July 1, 2008, unless renewed by the lender.  Interest is
charged at a rate ranging from prime plus .50% to prime minus .50%, adjusted
annually based upon the minimum fixed charge coverage ratio (EBITDA (earnings
before interest expense, income tax expense, depreciation and amortization)
minus dividends paid minus unfunded capital expenditures plus lease payments
divided by current maturities of long-term debt and lease payments plus interest
expense) as calculated in the previous year-end audited financial statements, as
follows:




Notes
to Consolidated Financial Statements
 Fixed
      Charge Coverage Ratio
              Interest Rate>/=
      1.05-1.24
              Prime +.50%>/=
      1.25-1.39
              Prime>/=
      1.40
              Prime
      - .50%








The
Agreements also include a Term Loan agreement which is due in monthly principal
installment payments of $24,848 plus interest at a rate of prime plus .75%,
hedged by an Interest Rate Swap Transaction.




On
January 25, 2005, the Company entered into an Interest Rate Swap Transaction
with its Primary Lender to hedge against rising interest rates on the floating
rate Term Loan debt.  The liability being hedged is the variability in
cash flows related to fluctuations in interest payments made.  The
fluctuation in interest rates exposes the Company to the risk of higher interest
expense.  The purpose of the Swap Agreement is to limit the Company’s
exposure to rising interest rates during the term of the floating rate Term Loan
noted above.  The swap has been designated as a cash flow
hedge.




The
interest rate swap hedge instrument has a fixed rate of 7.05%, matures on
February 1, 2012, and has a notional amount that remains equal to the principal
balance on the Term Loan.   The difference between the prime
rate, as periodically adjusted, and the Interest Rate Swap rate of 7.05% will be
settled monthly.  The effect of the interest rate swap is to fix the
floating rate on the Term Loan at 7.80%.  At December 31, 2006 the
Mark to Market valuation, representing the net present value of the expected
cash flow from the Interest Rate Swap, is approximately $32,400.




The
Agreements also include Term Loan agreements, which are not hedged by Interest
Rate Swap Transactions, which are due in monthly principal installment payments
that aggregate $13,223 plus interest at prime plus .50 %




The
Agreements are collateralized by all present and future right, title and
interest in all of the personal property of the Company including, but not
limited to, all accounts receivable, inventory and equipment.  This
collateral has a carrying value at December 31, 2006 as follows:


Accounts
      Receivable, net of Allowance for Doubtful Accounts
              
              $
              10,008,186Inventory
              
              
              378,439Equipment,
      net of Accumulated Depreciation
              
              
              2,976,175$
              13,362,800
 F-9


The
Agreements also include certain financial covenants including a minimum fixed
charge coverage ratio, a tangible net worth ratio, a debt to net worth ratio,
and a consecutive quarterly net loss provision; cross-collateralization
provisions; and a material adverse change clause which permits the financial
institution to call its obligation if the Company fails to comply with
covenants, as defined, or in the event of a material adverse change in the
Company’s business.  Management does not anticipate any adverse
changes in the next twelve months, however, there can be no
assurances.




The
Company was not in compliance with the debt to net worth ratio covenant as of
December 31, 2006.  The Company has obtained a waiver of compliance
with this covenant from the Primary Lender.







Interest paid amounted to
      approximately $615,000, $380,000, and $254,000 in 2006, 2005 and 2004,
      respectively




Scheduled principal payments on
long-term debt for the next five years, not including the note payable to bank
under line of credit, are as follows:




2007
              
              $
              771,3452008
              
              
              590,8812009
              
              
              530,8742010
              
              
              471,2542011
              
              
              409,506Thereafter
              
              
              125,678$
              2,899,538




At
December 31, 2006 the Company has outstanding commitments in the form of standby
letters of credit in the amount of approximately $1,335,256 securing various
agreements.









10.    Operating
Lease Obligations




Office facilities and various field
equipment are leased under noncancelable operating leases expiring at various
dates through 2012.  Rent expense incurred under operating leases
amounted to approximately $725,000, $694,000, and $405,000 in 2006, 2005and 2004, respectively.  Future
minimum lease payments under noncancelable operating leases are as
follows:




2007
              
              $
              510,0632008
              
              
              340,8212009
              
              
              279,0432010
              
              
              219,1382011
              
              
              170,698Thereafter
              
              
              22,500$
              1,542,263




11.
            Income
  Taxes




The following summarizes the income tax
(benefit) expense at December 31, 2006, 2005 and 2004:




2006
              
              
              2005
              
              
              2004Current:Federal
              
              $
              -
              
              
              $
              -
              
              
              $
              -State
              
              
              9,201
              
              
              
              10,066
              
              
              
              13,5989,201
              
              
              
              10,066
              
              
              
              13,598Deferred
              
              
              198,464
              
              
              
              (107,066
              )
              
              
              119,000$
              207,665
              
              
              $
              (97,000
              )
              
              $
              132,598




In2006,2005 and 2004 the differencebetween the expected tax
provision resulting from the application of the federal statutory income tax
rate to pre-tax incomeis
due to nondeductible items, state taxes and graduated federal tax
rates.  The deferred tax expense recognized in 2006, 2005and 2004 represents the effect of
changes in temporary differences.




At
December 31, 2006, the Company has federal net operating loss ("NOL")
carryforwards of approximately $5,000,000 for income tax
purposes.  The federal net operating loss carryforward expires at
various times beginning in 2009 through the year ending December 31,
2026.  The Company believes that it is more likely than not that the
taxable income in future years will be sufficient to utilize a portion of these
loss carryforwards.  Minimum taxable income is anticipated to be
approximately $400,000 per year to enable utilization of a portion of these loss
carryforwards.  Income taxes and franchise taxes paid were
approximately $9,000, $10,000, and $12,000 in 2006, 2005 and  2004,
respectively.




Deferred income taxes reflect the net
tax effect of temporarydifferences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax
purposes.




Significant components of the Company's
deferred tax liabilities and assets as of December 31, 2006and 2005 are as
follows:


2006
              
              
              2005Deferred tax
      liabilities:Depreciation
              
              $
              (492,176
              )
              
              $
              (226,457
              )(492,176
              )
              
              
              (226,457
              )Deferred tax
      assets:Net operating loss
      carryforward
              
              
              1,964,178
              
              
              
              1,929,610Accounts receivable
      reserve
              
              
              44,586
              
              
              
              40,624Accrued
      expenses
              
              
              342,212
              
              
              
              247,787Impairment
      allowance
              
              
              -
              
              
              
              39,0002,350,976
              
              
              
              2,257,021Net Deferred tax
      asset
              
              
              1,858,800
              
              
              
              2,030,564Valuation allowance for deferred
      assets
              
              
              (500,000
              )
              
              
              (500,000
              )Net deferred tax asset, net of
      valuation allowance
              
              $
              1,358,800
              
              
              $
              1,530,564




F-10


12.
            Employee Benefit
      Plan




The Company maintains a defined
contribution employee retirement plan (“Retirement Plan”) which covers
substantially all employees.  The Retirement Plan is funded by
voluntary employee contributions which are matched by the Company at a
designated percentage, and additional contributions by the Company at the
discretion of the Board of Directors.  Matching contributions made by
the Company to the Retirement Plan were approximately $27,000, $24,000, and
$18,000  in 2006, 2005 and 2004, respectively.  The Company
did not make discretionary contributions to the Retirement Plan in 2006, 2005
and 2004.




13.    Stock Option
Plan




The 2002 Omnibus Plan (“Omnibus Plan”)
maintained by the Company is intended to promote the growth and general
prosperity of the Company by offering incentives to its key employees who are
primarily responsible for the growth of the Company and to attract and retain
qualified employees.  Awards granted under the Plan may be (a) Stock
Options which may be designated as Incentive Stock Options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, or Nonqualified Stock
Options (“NQSO’s) not intended to so qualify; (b) stock appreciation rights; (c)
restricted stock awards; (d) performance awards; or (e) other forms of
stock-based incentive awards. The shares of stock with respect to which the
Awards may be granted shall be the common stock, par value at $0.01, of the
Company (“Common Stock").  Shares delivered upon exercise of the
Awards, at the election of the Board of Directors of the Company, may be stock
that is authorized but previously unissued or stock reacquired by the Company,
or both. The maximum number of shares with respect to which the Awards may be
granted under the Plan shall not exceed 1,000,000 shares of Common Stock;
provided, however, that such number of shares of Common Stock may also be
subject to adjustment, from time to time, at the discretion of the Board of
Directors of the Company.  Compensation cost subsequent to January 1,
2006 is measured based on the fair value of the options granted.  No
options were granted in 2006.




Under the Omnibus Plan, on May 21, 2002
the Company granted 335,000 NQSO’s.  The exercise price of each NQSO
equals the market price of the Company’s stock on the date of grant ($0.06), and
an NQSO’s maximum term is 10 years.  The NQSO’s vest and are
exercisable on a three-year vesting schedule.




Under the Omnibus Plan, on February 24,
2003 the Company granted 10,000 NQSO’s.  The exercise price of each
NQSO equals the market price of the Company’s stock on the date of grant
($0.10), and an NQSO’s maximum term is 10 years.  The NQSO’s vest and
are exercisable on a three-year vesting schedule.




Under the Omnibus Plan, on November 19,
2003 the Company granted 335,000 NQSO’s.  The exercise price of each
NQSO equals the market price of the Company’s stock on the date of grant
($0.15), and an NQSO’s maximum term is 10 years.  The NQSO’s vest and
are exercisable on a three-year vesting schedule.




Under the Omnibus Plan, on January 26,
2005 the Company granted 369,000 NQSO’s.  The exercise price of each
NQSO equals the market price of the Company’s stock on the date of grant
($0.40), and an NQSO’s maximum term is 10 years.  The NQSO’s vest and
are exercisable on a three-year vesting schedule.




A summary of the status of the Company’s
NQSO’s granted under the Omnibus Plan as of December 31, 2006, 2005 and 2004,
and changes during the years ending on those dates follows:


Shares
              
              
              Exercise
      PriceOutstanding
      at December 31, 2003
              
              
              581,672
              
              
              $
              0.06
      -0.15Exercised
              
              
              (88,329
              )
              
              $
              0.06Exercised
              
              
              (3,333
              )
              
              $
              0.10Forfeited
              
              
              (41,667
              )
              
              $
              0.06
      -
      0.15Expired
              
              
              
              
              
              
              -Outstanding
      at December 31, 2004
              
              
              448,343
              
              
              $
              0.06
      -
      0.15Granted
      January 26, 2005
              
              
              369,000
              
              
              $
              0.40Exercised
              
              
              (47,664
              )
              
              $
              0.06
      -
      0.15Forfeited
              
              
              (61,335
              )
              
              $
              0.06
      -
      0.15Forfeited
              
              
              (33,000
              )
              
              $
              0.40Expired
              
              
              
              
              
              $
              -Outstanding
      at December 31, 2005
              
              
              675,344
              
              
              $
              0.06
      -
      0.40Exercised
              
              
              (3,333
              )
              
              $
              0.06Forfeited
              
              
              
              
              
              $
              -Expired
              
              
              
              
              
              $
              -Outstanding
      at December 31, 2006
              
              
              672,011
              
              
              $
              0.06
      -
      0.40Exercisable
      at December 31, 2006
              
              
              451,011
              
              
              $
              0.06
      -
      0.40










Shares vesting under the plan had a fair
value of $68,613, $73,144 and $19,896 in 2006, 2005 and 2004
respectively.





The remaining weighted average
contractual life of options outstanding is approximately 6.8
years.  The remaining compensation costs related to non vested options
is $57,300 and will be recognized in 2007.








14.
            Commitment and
      Contingencies




The Company is subject to various
federal, state and local regulations relating to environmental matters,
including laws which require the investigation and, in some cases, remediation
of environmental contamination.  The Company's policy is to accrue and
charge to operations environmental investigation and remediation expenses when
it is probable that a liability has been incurred and an amount is reasonably
estimable.




The Company is a party to various
proceedings arising from the normal course of business.  Based on
information currently available, management believes adverse decisions relating
to litigation and contingencies in the aggregate would not materially affect the
Company's results of operations, cash flows or financial
condition.









15.
            Restatement




On March 31, 2008, the Company
determined that the worker’s compensation liability and accounts payable
recorded as of December 31, 2006 were understated by $205,000 and $36,000,
respectively.  As a result, the Company has restated its 2006
financial statements.  The impact of these adjustments on the
Company’s financial results as originally reported at December 31, 2006 is
summarized below:


As Reported
              
              
              As RestatedCurrent
    assets
              
              $
              14,109,788
              
              
              $
              14,203,688Total
assets
              
              $
              18,376,267
              
              
              $
              18,470,167Current
      liabilities
              
              $
              7,205,547
              
              
              $
              7,446,143Total
      liabilities
              
              $
              15,065,288
              
              
              $
              15,305,884Accumulated
      deficit
              
              $
              (3,751,789
              )
              
              $
              (3,898,485
              )Net income
              
              $
              354,669
              
              
              $
              207,973Basic earning per
      share
              
              $
              0.030
              
              
              $
              0.018Diluted earning per
      share
              
              $
              0.029
              
              
              $
              0.017


16.    Two-Year
Selected Quarterly Financial Data (Unaudited)




Year Ended December 31,
      2006Quarter
              
              
              Quarter
              
              
              Quarter
              
              
              QuarterEnded
              
              
              Ended
              
              
              Ended
              
              
              EndedMarch 31
              
              
              June 30
              
              
              September
30
              
              
              December 31Project
      billings
              
              $
              7,851,240
              
              
              $
              7,106,271
              
              
              $
              8,235,199
              
              
              $
              11,877,279Gross
margin
              
              
              1,521,763
              
              
              
              2,006,325
              
              
              
              1,846,972
              
              
              $
              1,687,078Net income
      (loss)
              
              
              36,567
              
              
              
              262,267
              
              
              
              (38,232
              )
              
              $
              (52,629
              )Net income (loss) per
      sharebasic
              
              $
              0.00
              
              
              $
              0.02
              
              
              $
              (0.00
              )
              
              $
              (0.00
              )diluted
              
              $
              0.00
              
              
              $
              0.02
              
              
              $
              (0.00
              )
              
              $
              (0.00
              )











In the quarter ended September 30, 2006,
the Companyrecorded animpairment loss of $150,000 on the carrying value of the land and
buildings held for sale (Note 7).







Year
      Ended December 31,2005Quarter
              
              
              Quarter
              
              
              Quarter
              
              
              QuarterEnded
              
              
              Ended
              
              
              Ended
              
              
              EndedMarch
      31
              
              
              June
      30
              
              
              September
      30
              
              
              December
      31Project
      billings
              
              $
              4,865,202
              
              
              $
              4,790,737
              
              
              $
              6,249,747
              
              
              $
              5,878,410Gross
      margin
              
              
              1,341,713
              
              
              
              1,319,338
              
              
              
              1,667,199
              
              
              $
              1,500,313Net
      income (loss)
              
              
              (32,246
              )
              
              
              (9,608
              )
              
              
              186,883
              
              
              $
              (290,773
              )Net
      income (loss) per sharebasic
              
              $
              (0.00
              )
              
              $
              (0.00
              )
              
              $
              0.02
              
              
              $
              (0.03
              )diluted
              
              $
              (0.00
              )
              
              $
              (0.00
              )
              
              $
              0.02
              
              
              $
              (0.03
              )


In the quarter ended December 31, 2005
the Companyrecorded animpairment loss of $100,000 on the carrying value of the land and
buildings held for sale (Note 7) and accrued a $450,000 liability to cover
potential legal costs and fees related to a claim against the Company (Note
8).







F-11


SCHEDULE II - VALUATION AND
      QUALIFYING ACCOUNTSBalance at
              
              
              
              
              
              
              
              
              
              Balance atBeginning
              
              
              
              
              
              
              
              
              
              End ofDescription
              
              of Period
              
              
              Additions
              
              
              Deductions
              
              
              
              PeriodYEAR ENDED DECEMBER 31,
      2006Reserves deducted from assets
      towhich they
      apply:Doubtful
      accounts receivable
              
              $
              104,163
              
              
              $
              62,157
              
              
              $
              51,996
              
              (a)
              
              $
              114,324Valuation
      allowance for deferred tax assets
              
              $
              500,000
              
              
              $
              -
              
              
              $
              -
              
              
              
              $
              500,000YEAR ENDED DECEMBER 31,
      2005Reserves deducted from assets
      towhich they
      apply:Doubtful
      accounts receivable
              
              $
              174,500
              
              
              $
              40,975
              
              
              $
              111,312
              
              (a)
              
              $
              104,163Valuation
      allowance for deferred tax assets
              
              $
              500,000
              
              
              $
              -
              
              
              $
              -
              
              
              
              $
              500,000YEAR ENDED DECEMBER 31,
      2004Reserves deducted from assets
      towhich they
      apply:Doubtful
      accounts receivable
              
              $
              187,000
              
              
              $
              14,689
              
              
              $
              27,189
              
              (a)
              
              $
              174,500Valuation
      allowance for deferred tax assets
              
              $
              500,000
              
              
              $
              -
              
              
              $
              -
              
              
              
              $
              500,000(a) Doubtful accounts written off
      and adjustments.


F-12





SIGNATURES








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





OP-TECH Environmental Services,
Inc.


(Registrant)





By:/s/ Charles B.
Morgan


Charles
B. Morgan


Chief
Executive Officer





April 12,
2008





Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities indicated on the 31st    day
of March, 2008.





/s/
      Robert J. Berger
            Director
      and Co-Chairman of the BoardRobert
      J. Berger/s/
      Richard Messina
            Director
      and Co-Chairman of the BoardRichard
      Messina/s/
      Richard L. Elander
            DirectorRichard
      L. Elander/s/
      Cornelius B. Murphy
            DirectorCornelius
      B. Murphy/s/
      Richard Jacobson
            DirectorRichard
      Jacobson/s/
      Steven A. Sanders
            DirectorSteven
      A. Sanders/s/
      George W. Lee, Jr
            DirectorGeorge
      W. Lee Jr./s/
      Charles B. Morgan
            Chief
      Executive OfficerCharles
      B. Morgan/s/
      Jon S. Verbeck
            Chief
      Financial Officer and TreasurerJon
      S. Verbeck