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 – MANAGEMENT’S REPORT ON FINANCIAL INFORMATION AND INTERNAL CONTROLS
 
Responsibility For Financial Information — We are responsible for the preparation, accuracy, integrity and objectivity of the Consolidated Financial Statements and the other financial information included in this report.  Such information has been prepared in conformity with accounting principles generally accepted in the United States of America and accordingly, includes certain amounts that represent management’s best estimates and judgments. Actual amounts could differ from those estimates.
 
Responsibility for Internal Controls — We are also responsible for establishing and maintaining adequate internal controls over financial reporting. These internal controls consist of policies and procedures that are designed to assess and monitor the effectiveness of the control environment including: risk identification, governance structure, delegations of authority, information flow, communications and control activities.  While no system of internal controls can ensure elimination of all errors and irregularities, Op-Tech’s internal controls, which are reviewed and modified in response to changing conditions, have been designed to provide reasonable assurance that assets are safeguarded, policies and procedures are followed, transactions are properly executed and reported, and appropriate disclosures are made. The concept of reasonable assurance is based on the recognition that there are limitations in all systems of internal control and that the costs of such systems should be balanced with their benefits. The Audit Committee of the Board of Directors, which is comprised solely of independent directors, meets regularly with Op-Tech’s senior financial management, and independent registered public accounting firm to review audit plans and results, as well as the actions taken by management in discharging its responsibilities for accounting, financial reporting and internal controls. The Audit Committee is responsible for the selection and compensation of the independent registered public accounting firm. Op-Tech’s financial management, internal auditors and independent registered public accounting firm have direct and confidential access to the Audit Committee at all times.
 
Report On Internal Control Over Financial Reporting — We have evaluated Op-Tech’s internal control over financial reporting as of December 31, 2007. This evaluation was based on criteria for effective internal control over financial reporting set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on the evaluation performed, we identified the following material weakness in our internal control over financial reporting as of December 31, 2007. A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

 
 
We did not maintain effective controls over reconciliations or journal entries. Specifically, (a) our controls over the preparation, review and monitoring of account reconciliations were ineffective to provide reasonable assurance that account balances were accurate and agreed to appropriate supporting detail, calculations or other documentation, and (b) effective controls were not designed and in place to provide reasonable assurance that journal entries, both recurring and non-recurring, were prepared with acceptable support and sufficient documentation and that journal entries were reviewed and approved to provide reasonable assurance of the validity, accuracy and completeness of the entries recorded. These control deficiencies could result in a misstatement to accounts and disclosures that would result in a material misstatement to the annual or interim financial statements that may not be prevented or detected. There were audit adjustments to our 2007 consolidated financial statements including the restatement of certain liabilities to 2006.

 
Because of the above described material weaknesses in internal control over financial reporting, management concluded that our internal control over financial reporting was not effective as of December 31, 2007 based on the criteria set forth in Internal Control — Integrated Framework issued by the COSO.  This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report 
Report On Disclosure Controls And Procedures — As of December 31, 2007, we carried out an evaluation of the effectiveness of the design and operation of Op-Tech’s disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, we concluded that Op-Tech’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in Op-Tech’s periodic filings under the Exchange Act is accumulated and communicated to us to allow timely decisions regarding required disclosures, and such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.


ITEM 9b – OTHER INFORMATION

None
 
 

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 November 1, 2007 for a term of one year.

Each director has served continuously since he was first elected.

The Board of Directors held four 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 Information
 
Robert J. Berger (61)
Director and Co-Chairman of the Board
 
 
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 ONBANCORP, Inc. from 1978 through March 31, 1998, his last position being Senior Vice President, Treasurer, and Chief Financial Officer.  Mr. Berger is also Chairman, President, and Chief Executive Officer of St. Lawrence Industrial Services, Inc. and also serves as Vice Chairman of Beacon Federal Bancorp, Inc.
 
     
Richard Messina (45)
Director and Co-Chairman of the Board
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 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. (63)
Director
 
 
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 (66)
Director
Mr. Elander has served in his present position as a Director since November of 1991. Mr. Elander previously served as the Commissioner of the Onondaga County Department of Water Environment Protection prior to retirement.
 
 
Steven A. Sanders (62)
Director
Mr. Sanders has served in his present position as a Director since December 1991.  Mr. Sanders is currently Senior Partner of Sanders, Ortoli, Vaughn-Flam, Rosenstadt, LLP.  From January 1, 2004 until June 30, 2007, he was 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 also serves as a Director of Genesis Gold Limited, Helijet International, Inc., NaiKun Wind Development, Inc.  Additionally, he is a Director of the Roundabout Theatre (the largest not-for-profit theatre in North America), Town Hall New York City, and the New York Theatre Ballet
 
George W. Lee, Jr. (59)
Director
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 (44)
Director
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.


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 the 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 three meetings during the year ended December 31, 2007.  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 2007, 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, 2007 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.


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 2007, 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, 2007.  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, 2007 be included in the Annual Report on form 10-K for 2007.  This report is provided by the following independent directors, who comprise the committee:

Cornelius B. Murphy, PhD (Chairman)
Richard L. Elander
George W. Lee, Jr.

 

EXECUTIVE OFFICERS OF THE COMPANY

Name
Age
Position Held
Charles B. Morgan
Chief Executive Officer
Jon S. Verbeck
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 the company, 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 operations firm.  Mr. Morgan has 34 years of experience as a senior executive and corporate director of environmental, engineering, construction and energy companies.  Mr. Morgan has experience with all aspects of senior level company management including marketing and sales, strategic planning, financial management, product and service development, project management and mergers and acquisitions.  Mr. Morgan has also managed a variety of large scale projects domestically and internationally for a broad spectrum of private sector industrial clients.


Mr. Verbeck was named Chief Financial Officer (“CFO”) and Treasurer in May 2007.  Mr. Verbeck is a Certified Public Accountant in New York State.  He previously worked as an Auditor for a public accounting firm from 1985 to 1991, as CFO for a manufacturing and distributor from 1991 to October 2005, and as the Managing Director of a consulting firm from 2005.

 
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.
 
 
BENEFICIAL OWNERSHIP AND REPORTING COMPANIES
 
Section 16(a) of the Exchange Act requires our directors, officers (including a person performing a principal policy-making function) and persons who own more than 10% of a registered class of our equity securities to file with the Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities of ours. Directors, officers and 10% holders are required by Commission regulations to send us copies of all of the Section 16(a) reports they file. Based solely upon a review of the copies of the forms sent to us and the representations made by the reporting persons to us, we believe that during the fiscal year ended December 31, 2007, our directors, officers and 10% holders complied with the filing requirements under Section 16(a) of the Exchange Act.

 

 
 

ITEM 11. EXECUTIVE COMPENSATION
 
 
A. 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.
 
 
B. 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.
 
 
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 2008 meeting, the Compensation Committee made cash bonus awards to the named executives for 2007 in the amounts shown in the Summary Compensation Table that follows this MD&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.
 

 
 


 
 
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
 
Mr. Morgan has signed a new employment agreement on March 28, 2008 that runs through March 31, 2010.    Under the Agreement, if seventy-five percent (75%) of the common stock or assets of the Company is sold, Mr. Morgan 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.
 
 
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 new employment agreement with Mr. Morgan is reasonable and appropriate.
 
 
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)(3)
(i)
  
Total
($)
(j)
  
 
Charles B. Morgan
  
 
$
161,700
  
$
     17,500
    
$
     
$
11,666
      
$
     
$
20,477
    
$
   211,343
  
Chief Executive Officer
  
 
$
 148,500
  
$
     17,500
    
$
     
$
              11,666
      
$
     
 $
    2,228
    
$
  179,894
  


(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.

(3) In 2007, Mr. Morgan was paid $18,300 for unused vacation.


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