United States Securities and Exchange Commission

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~September~~March 3031, ~~2012~~2013

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

For the transition period from to _____ to_____

Commission file number 0-19761

OP-TECH Environmental Services, Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

91-1528142

(I.R.S. Employer Identification No.)

1 Adler Drive, E Syracuse, NY 13057

(Address of principal executive offices) (Zip Code)

(315) 437-2065

(Registrant's telephone number, including area code)

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

Yes or No ~~_X_~~ X

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.

Large Accelerated filer ___ Accelerated filer___ Non-accelerated filer ___ Small Reporting Company X

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X or No ~~___~~

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_~~ X

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date (~~September~~May 3031, ~~2012~~2013) 11,940,373

OP-TECH Environmental Services, Inc. and Wholly-Owned Subsidiaries

INDEX

PART I.	FINANCIAL INFORMATION	Page No.
Item 1.	Financial Statements
	Consolidated Balance Sheets
	-September 30, 2012 (Unaudited) and December 31, 2011 (Audited)	3
	-March 31, 2013 (Unaudited) and December 31, 2012 (Audited)	2
	Consolidated Statements of Operations
	-Three months ended September 30, 2012 and September 30, 2011 (Unaudited)	4
	-Three months ended March 31, 2013 and March 31, 2012 (Unaudited	3
	-Nine months ended September 30, 2012 and September 30, 2011 (Unaudited)
	Consolidated Statements of Comprehensive Income
	-Three months ended September 30, 2012 and September 30, 2011 (Unaudited)	5
	-Nine months ended September 30, 2012 and September 30, 2011 (Unaudited)
	Consolidated Statements of Cash Flows
	-Nine months ended September 30, 2012 and September 30, 2011 (Unaudited)	6
	-Three months ended March 31, 2013 and March 31, 2012 (Unaudited)	4
	Notes to Consolidated Financial Statements (Unaudited)	75
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	108
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	1312
Item 4.	Controls and Procedures	1412
PART II.	OTHER INFORMATION	1513
	SIGNATURES	1614

PART I - FINANCIAL INFORMATION

SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS

The Company is including the following cautionary statement in this Form 10-Q 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-Q, 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 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.



OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS



	(UNAUDITED)
	March 31,			December 31,
	2013			2012

ASSETS

Current Assets:
Cash	$	1,052,042		$	1,241,052
Accounts receivable, net		5,404,439			8,790,610
Costs on uncompleted projects applicable to future billings		352,530			334,179
Inventory		389,345			440,514
Prepaid expenses and other current assets		364,474			382,511
		-
Total Current Assets		7,562,831			11,188,866

Property and equipment, net		1,121,987			1,121,117
Deferred tax asset (Note 8)		200,000			200,000
Other long term assets		112,946			116,732

Total Assets	$	8,997,764		$	12,626,715


LIABILITIES AND STOCKHOLDERS' DEFICIT


Current Liabilities:
Accounts payable	$	1,368,647		$	4,587,827
Billings in excess of costs and estimated profit
on uncompleted projects		1,099,148			888,912
Accrued future losses		3,400			16,312
Accrued expenses and other current liabilities		1,354,666			1,752,764
Note payable to bank under line of credit		4,980,000			5,000,000
Convertible notes payable (Note 5)		2,000,000			2,000,000
Current portion of long-term debt (Note 7)		1,990,379			2,125,186

Total Liabilities		12,796,241			16,371,001

Shareholders' Deficit:
Common stock, par value $.01 per share; authorized 120,000,000
shares; 11,940,373 shares issued and outstanding		119,404			119,404
Additional paid-in capital		7,360,558			7,360,558
Accumulated deficit		(11,278,439	)		(11,224,248	)

		(3,798,477	)		(3,744,286	)

Total Liabilities and Shareholders' Deficit	$	8,997,764		$	12,626,715


The accompanying notes are an integral part of the consolidated financial statements.

OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)	~~(UNAUDITED)~~
	September 30,			December 31,
	THREE MONTHS ENDED
	2012			2011
	March 31,			March 31,
ASSETS
	2013			2012
Current Assets:
Project billings and services	$	5,014,466		$	5,512,591
Cash	$	896,224		$	412,141
Project costs		3,345,417			3,979,333
Accounts receivable, net		7,111,224			9,556,251
Gross margin		1,669,049			1,533,258
Costs on uncompleted projects applicable to future billings		801,697			2,123,033
		33.3	%		27.8	%
Inventory		411,971			356,243
Operating expenses:
Current portion of deferred tax asset (Note 9)		150,000			620,000
Payroll expense and related payroll taxes and benefits		991,125			1,086,193
Prepaid expenses and other current assets		642,399			540,396
Office Expense		118,197			103,415
		-
Occupancy		210,390			214,528
Total Current Assets		10,013,515			13,608,064
Business Insurance		111,168			123,009
Property and equipment, net		1,138,328			1,467,357
Professional Services		50,332			206,000
Deferred tax asset (Note 9)		200,000			200,000
Equipment Expenses, net of usage credit		116,676			168,386
Other long term assets		113,641			121,665
Other operating expenses (income)		(40,092	)		(3,017	)
Total Assets	$	11,465,484		$	15,397,086
		1,557,797			1,898,514
LIABILITIES AND STOCKHOLDERS' DEFECIT
Operating income (loss)		111,252			(365,256	)
Current Liabilities:
Other income and (expense):
Accounts payable	$	3,357,198		$	6,858,504
Interest expense		(164,259	)		(223,127	)
Billings in excess of costs and estimated profit
Other, net		3,045			34,834
on uncompleted projects		1,014,239			1,256,395
		(161,214	)		(188,293	)
Accrued future losses		59,117			1,253,147
Net loss before income taxes		(49,962	)		(553,549	)
Accrued expenses and other current liabilities		1,506,970			1,080,899
Income tax benefit (expense)		(4,229	)		229,501
Note payable to bank under line of credit		5,000,000			5,000,000
Net loss	$	(54,191	)	$	(324,048	)
Convertible notes payable (Note 6)		1,995,334			1,870,333
Earnings (loss) per common share:
Current portion of long-term debt (Note 8)		2,504,818			2,827,299
Basic	$	(0.005	)	$	(0.03	)
Total Liabilities		15,437,676			20,146,577
Diluted	$	(0.005	)	$	(0.03	)
Shareholders' Defecit:
Weighted average shares outstanding:
Common stock, par value $.01 per share; authorized 120,000,000
Basic		11,940,373			11,940,373
shares; 11,940,373 shares issued and outstanding		119,404			119,404
Diluted		11,940,373			11,940,373
Additional paid-in capital		7,360,558			7,360,558
Accumulated deficit		(11,452,154	)		(12,229,453	)
		(3,972,192	)		(4,749,491	)
Total Liabilities and Sharehers' Equity	$	11,465,484		$	15,397,086
The accompanying notes are an integral part of the consolidated financial statements.

OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	THREE MONTHS ENDED						~~NINE MONTHS ENDED~~
	September 30,			September 30,			September 30,			September 30,
	March 31,			March 31,
	2012			2011			2012			2011
		2013			2012
Project billings and services	$	8,497,189		$	9,282,640		$	22,920,856		$	21,983,810
Operating activities:
Project costs		5,563,052			8,458,968			16,008,606			17,748,117
Net loss	$	(54,191	)	$	(324,048	)
Gross margin		2,934,137			823,672			6,912,250			4,235,693
Adjustments to reconcile net income (loss) to net cash
		34.5	%		8.9	%		30.2	%		19.3	%
provided by operating activities:
Operating expenses:
Gain on sale of equipment		-			-
Payroll expense and related payroll taxes and benefits		901,845			1,125,082			2,858,255			3,635,051
Bad debt recovery		(65,235	)		(61,348	)
Office Expense		92,345			168,736			272,838			487,701
Depreciation and amortization		99,043			136,920
Occupancy		210,598			218,634			618,734			666,580
Amortization of discount on convertible notes		-			41,667
Business Insurance		113,830			123,095			373,339			383,619
Benefit from deferred income taxes		-			(233,000	)
Professional Services		109,293			136,005			439,071			452,807
(Increase) decrease in operating assets and
Equipment Expenses, net of usage credit		148,504			114,482			417,539			416,697
increase (decrease) in operating liabilities:
Other expenses		38,574			92,644			135,729			146,329
Accounts receivable		3,451,406			3,289,796
		1,614,989			1,978,678			5,115,505			6,188,784
Costs on uncompleted projects applicable to
Operating income (loss)		1,319,148			(1,155,006	)		1,796,745			(1,953,091	)
future billings		(18,351	)		1,301,238
Other income and (expense):
Billings and estimated profit in excess of costs
Interest expense		(219,880	)		(147,113	)		(659,312	)		(448,197	)
on uncompleted contracts		210,236			(415,882	)
Other, net		(12,938	)		44,076			115,664			125,724
Prepaid expenses, inventory and other assets		421,424			189,887
		(232,818	)		(103,037	)		(543,648	)		(322,473	)
Other long term assets		3,786			1,842
Net income (loss) before income taxes		1,086,330			(1,258,043	)		1,253,097			(2,275,564	)
Accounts payable and accrued expenses		(3,617,278	)		(2,469,491	)
Income tax benefit (expense)		(402,300	)		140,000			(475,799	)		537,000
Accrued future project losses		(12,912	)		(813,701	)
Net income (loss)	$	684,030		$	(1,118,043	)	$	777,298		$	(1,738,564	)
Net cash provided by operating activities		417,928			643,880
Earnings (loss) per common share:
Investing activities:
Basic	$	0.06		$	(0.09	)	$	0.07		$	(0.15	)
Purchase of property and equipment		(99,913	)		(2,000	)
Diluted	$	0.01		$	(0.09	)	$	0.02		$	(0.15	)
Proceeds from sale of equipment		-			-
Weighted average shares outstanding:
Net cash used in investing activities		(99,913	)		(2,000	)
Basic		11,940,373			11,940,373			11,940,373			11,940,373
Financing activities:
Diluted		52,543,076			11,940,373			48,729,743			11,940,373
Principal payments on current and long-term borrowings		(507,025	)		(514,876	)
The accompanying notes are an integral part of the consolidated financial statements.
Net cash used in financing activities		(507,025	)		(514,876	)
Increase (decrease) in cash		(189,010	)		127,004
Cash at beginning of period		1,241,052			412,141
Cash at end of period	$	1,052,042		$	539,145
Non-cash item
Non-cash refinancing of insurance	$	352,218		$	436,979
The accompanying notes are an integral part of the consolidated financial statements.

OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
	THREE MONTHS ENDED					NINE MONTHS ENDED
	September 30,		September 30,			September 30,		September 30,
	2012		2011			2012		2011
Net income (loss)	$	684,030	$	(1,118,043	)	$	777,298	$	(1,738,564	)
Other comprehensive income:
Change in Fair Value of Cash Flow Hedge
net of tax effect		-		-			-		4,844
Other comprehensive income		-		-			-		4,844
Comprehensive income (loss)	$	684,030	$	(1,118,043	)	$	777,298	$	(1,733,720	)
The accompanying notes are an integral part of the consolidated financial statements.

OP-TECH ENVIRONMENTAL SERVICES, INC. AND WHOLLY-OWNED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
	NINE MONTHS ENDED
	September 31,			September 31,
	2012			2011
Operating activities:
Net income (loss)	$	777,298		$	(1,738,654	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on sale of equipment		-			-
Bad debt expense (recovery)		(27,335	)		(2,032	)
Depreciation and amortization		372,350			475,730
Amortization of discount on convertible notes		125,001			125,417
(Benefit) expense from deferred income taxes		470,000			(539,000	)
(Increase) decrease in operating assets and
increase (decrease) in operating liabilities:
Accounts receivable		2,472,362			357,904
Costs on uncompleted projects applicable to
future billings		1,321,336			(1,744,502	)
Billings and estimated profit in excess of costs
on uncompleted contracts		(242,156	)		462,004
Prepaid expenses, inventory and other assets		789,623			(336,052	)
Other long term assets		8,024			(40,381	)
Accounts payable and accrued expenses		(3,075,234	)		(315,861	)
Accrued future project losses		(1,194,030	)		-
Net cash provided by (used in) operating activities		1,797,239			(3,295,427	)
Investing activities:
Purchase of property and equipment		(43,321	)		(43,938	)
Deposit on purchase of building		-			(10,753	)
Proceeds from sale of equipment		74,000			-
Net cash provided by (used in) investing activities		30,679			(54,691	)
Financing activities:
Increase (decrease) in outstanding checks in excess of bank balance		-			49,501
Proceeds from issuance of convertible notes payable		-			403,000
Redemption of convertible note payable		-			(20,000	)
Proceeds from note payable to bank and current
and long-term borrowings, net of financing costs		-			3,147,297
Principal payments on current and long-term borrowings		(1,343,835	)		(863,061	)
Net cash provided by (used in) financing activities		(1,343,835	)		2,716,737
Increase (decrease) in cash		484,083			(633,381	)
Cash at beginning of period		412,141			646,560
Cash at end of period	$	896,224		$	13,179
Non-cash item
Non-cash debt refinancing	$	-		$	4,794,335
Non-cash refinancing of insurance	$	1,022,311		$	554,009
The accompanying notes are an integral part of the consolidated financial statements.

OP-TECH ENVIRONMENTAL SERVICES, INC.

AND WHOLLY-OWNED SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, quarterly results include all adjustments (consisting of only normal recurring adjustments) that the Company considers necessary for a fair presentation of such information for interim periods.

The unaudited financial statements include the accounts of the Company and its ~~two~~ wholly-owned ~~subsidiaries~~subsidiary; OP-TECH ~~Environmental Services, Ltd, an inactive Canadian company, and OP-TECH~~ AVIX, Inc. All material intercompany transactions and balances have been eliminated in consolidation.

The balance sheet at December 31, ~~2011~~2012 has been derived from the audited balance sheet included in the Company’s annual report on Form 10-K for the year ended December 31, ~~2011~~2012.

2. Revenue Recognition

The timing of revenues is dependent on the Company's backlog, contract awards, and the performance requirements of each contract. The Company's revenues are also affected by the timing of its clients planned remediation work as well as the timing of unplanned emergency spills. Historically, planned remediation work generally increases during the third and fourth quarters. Although the Company believes that the historical trend in quarterly revenues for the third and fourth quarters of each year are generally higher than the first and second quarters, there can be no assurance that this will occur in future periods.

3. Related Party Transactions

The Company utilizes subcontract labor purchased from St. Lawrence Industrial Services, Inc., which is owned by a director of the Company. The costs for these services amounted to approximately $2141,~~067,000~~437 and $1923,~~760,000~~818 for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012. At ~~September~~March 3031, 2012, the Company ~~had~~has a payable to St. Lawrence of approximately $64215,000 which is included in accounts payable. At ~~September~~March 3031, ~~2011~~2013, the Company had a ~~payable~~receivable tofrom St. Lawrence of approximately $49222,000 as a result of advances made prior to the performance of services.

Additionally, the Company has entered into Secured Loan Agreements with members of management as discussed in Note 65 below.

4. Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted average shares outstanding. There are outstanding options under the Company’s Stock Option Plan and warrants expiring May 2013 that were issued to a financial advisor in May 2002 to purchase 480,000 shares of common stock at $0.066 per share. The convertible notes payable with a face value of $2,000,000 are convertible into shares of common stock at the election of the holders of the Convertible Notes at $0.06 per share as more fully explained in Note 65. ~~The~~These ~~options,~~items ~~warrants and shares which can be issued on conversion of these convertible notes~~ were not included in the calculation of diluted earnings per share for ~~2011~~March 31, 2013 and March 31, 2012 as they would be anti-dilutive due to the net loss. The 2012 net income used in computing diluted earnings per share represents reported net income plus interest expense of $79,450 and $249,450 (net of tax of $52,967 and $166,300, respectively) for the three and nine months ended September 30, 2012, assuming conversion of the notes at the being of the respective periods.

5. ~~Sale of~~ Convertible Notes

During January 2011, the Company entered into a series of Secured Loan Agreements with several individuals for the sale of secured convertible notes (the “Convertible Notes”) totaling $403,000. These are in addition to the $1,617,000 convertible notes issued during the year ending December 31, 2010. These individuals represent members of executive management, members of the board of directors, and significant shareholders. The Convertible Notes are for a term of two years, carry interest of 6% and are convertible into shares of common stock at the election of the holders of the Convertible Notes at $0.06 per share and, as long as the average share price of the Company’s common stock on the Over-the-Counter Bulletin Board remains above $0.06, at the election of the Company at $0.06 per share. The issuance of the Convertible Notes in the first quarter of 2011 does not represent a change of control as approximately 94% of the Convertible Notes were issued to shareholders of the Company that currently own approximately 34% of the Company’s outstanding share capital.

The Company recorded $67,167 in additional debt discount in 2011 related to the issuance of these convertible notes due to the beneficial conversion feature, which is shown as Additional Paid in Capital and reduction in the convertible notes payable. These discounts ~~will~~were be amortized over two years. The discount is based on the market value of the stock at the date of the note agreements which was $.07 per share.

In January 2011, the Company redeemed $20,000 of Convertible Notes.

The principle amount of the Convertible Notes may be converted into 33,333,334 shares of common stock, or approximately 279% of current outstanding shares of common stock. Accrued interest is also converted at $0.06 per share.

The Company also entered into a Security Agreement to secure payment and performance of its obligations under the Convertible Notes pursuant to which it granted the holders of the Convertible Notes a security interest in all of its assets. The security granted is subordinated to a security interest granted to ~~the~~certain ~~Senior~~senior ~~Debt~~debt. The Company’s sole active subsidiary also guaranteed all amounts owed by the Company under the Convertible Notes. ~~Accrued interest is also converted at $0.06 per share.~~

8There was no amortization expense during 2013 related to the Convertible Note discounts. Amortization expense was $41,667 for the three months ending March 31, 2012 and is included in interest expense.

~~Amortization~~The ~~expense~~Company ~~related~~was tonot in compliance with the ~~Convertible~~default ~~Note~~conditions ~~discounts~~as ~~was~~of ~~$115~~March 31,~~750~~ 2013 and December 31, 2012. The annual interest rate is to increase to 20% for ~~the~~any ~~nine~~period ~~months~~of ~~ending~~default. As ~~September~~of 30December 31, ~~2012~~2011, ~~and~~the interest began to accrue at 20%. The redemption of shares is ~~included~~available to the lenders through the maturity dates set in ~~interest~~the ~~expense~~agreements. Due to the default on the Convertible Notes and the Lender’s option to call Convertible Notes these are classified as current as of March 31, 2013 and December 31, 2012.

There is no more remaining amortization period for the discount related to the first tranche of $1,332,000, 3 months remains for second tranche of $285,000, and 3 months remains for the third tranche of $383,000, net of redemptions.6

~~Interest~~As ~~expense~~of ~~recorded~~April on22, ~~these~~2013, ~~notes~~the ~~amounted~~Convertible Notes were amended to ~~$415,000~~provide ~~for~~the Lenders with the ~~nine~~option ~~months~~to ~~ended~~call ~~September~~a ~~30,~~portion ~~2012~~or ~~yielding~~all anof ~~effective~~the ~~interest~~Principal ~~rate~~Sum ofand/or ~~27.7%.~~Interest for payment at any time while the Convertible Notes remain outstanding. The ~~unamortized~~maturity ~~discount~~date ~~was~~has ~~approximately~~been ~~$14,000~~extended atto ~~September~~August 30, ~~2012~~2013.

The annual interest will continue to accrue on each Note at the rate of 6% per annum through and including the applicable Original Designated Date, and at the rate of 20% per annum thereafter.

Interest expense recorded on these notes amounted to $100,000 for the three months ended March 31, 2013 yielding an effective interest rate of 20.0%.

6. Unapproved Change Orders

The Company enters into cost-reimbursable arrangements in which the final outcome or overall estimate at completion may be materially different than the original contract value. While the terms of such contracts indicate costs are to be reimbursed by our clients, the Company typically processes change notice requests to document agreement as to scope and price. Due to the nature of these items, we have not classified and disclosed the amounts as unapproved change orders.

While the Company is generally able to obtain the requested change orders on cost-reimbursable contracts, potential exposure exists relative to costs incurred in excess of agreed upon contract value.

The Company also has unapproved change orders on smaller projects in the ordinary course of business. These amounts are recorded at cost in cost on uncompleted contracts applicable to future billing and the applicable profit will be recorded when change orders are approved. Timing of claim collections ~~are~~is uncertain and depends on negotiated settlements pursuant to the contracts. As a result, the Company may not collect unapproved change orders within the next twelve months.

7. Long-Term Debt

The loan agreement requires a financial covenant to be measured at ~~September~~March 3031, ~~2012~~2013. Due to the losses incurred during 2011 that debt covenant was violated at ~~September~~March 3031, ~~2012~~2013. The default on the financing loan agreement also caused a default on the convertible note agreements. The Company did not receive a waiver from the bank for a violation of the debt covenants. Additionally, the Company was under-collateralized for the borrowing base calculation related to the line of credit at ~~September~~March 3031, ~~2012~~2013.

For these reasons the long-term debt was reclassified to current liabilities and areduced ~~reduction in~~ working capital. Additionally, if the line of credit were no longer available or the bank demanded repayment of the debt, the Company may not have sufficient capital to operate and there would be substantial doubt about its ability to continue as a going concern.

8. Income Taxes

For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, the Company maintained its valuation allowance for deferred tax assets. The ~~company~~Company has approximately $9,~~200~~400,000 of other net operating loss carryforwards that may be utilized when the Company generates taxable income. Management has assessed the potential utilization of other net operating loss carryforwards including those that will be generated in ~~2012~~2013 and determined that it is more likely than not that the Company will be able to generate taxable income to utilize a portion of the net operating losses with expiration dates of 2018 through 2031, and has recorded a deferred tax asset of $200,000.

PART I – FINANCIAL INFORMATION

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

Results of Operations.

LIQUIDITY AND CAPITAL RESOURCES

At ~~September~~March 3031, ~~2012~~2013, the Company had cash of $~~896~~1,~~224~~052,042 compared to $~~412~~1,~~141~~241,052 at December 31, ~~2011~~2012. The cash balance has ~~increased~~remained consistent due to ~~improved~~collected ~~collection~~receivables ofpaying ~~receivables~~for operating costs and ~~profitable~~accounts ~~operating~~payable ~~activities~~balances.

At ~~September~~March 3031, ~~2012~~2013, the Company had negative working capital of ($5,~~424~~233,~~161)~~410 compared to (negative working capital of $65,~~538~~182,~~513)~~135 at December 31, ~~2011~~2012, with a current ratio of .6559 to 1 at ~~September~~March 3031, ~~2012~~2013 and .68 to 1 at December 31, ~~2011~~2012. The increase in the negative working capital and the decrease in the current ratio ~~remained~~is primarily a result of the ~~same~~smaller ~~for~~loss incurred during the ~~periods~~first ~~stated~~three months of 2013.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, the Company’s net cash provided by operations was $1417,~~797,239~~928 compared to net cash ~~used~~provided inby operations of $3643,~~295,427~~880 during the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012. The decrease in net cash provided by operating activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 was due to ~~significant~~changes ~~collections~~in ofaccounts receivable ~~balances~~and billings and ~~the~~estimated ~~billing~~profits ofin ~~previous~~excess of costs ~~that~~on ~~were~~uncompleted ~~applicable~~contracts, tonet ~~future~~of ~~billings~~changes in accounts payable and accrued expenses.

The Company’s net cash ~~provided~~used byin investing activities of $3099,~~679~~913 ~~during~~for the ~~first~~three ~~nine~~ months ended ~~September~~March 3031, ~~2012~~2013 compared to a net ~~cashed~~cash used ~~in investing activities~~ of $542,~~691~~000 ~~during~~for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012. The ~~cash~~change ~~provided~~is ~~by investing activities for the nine months ended September 30, 2012 of the year was~~ due to the ~~sale~~purchase of equipment during 2013.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013, the Company’s net cash used inby financing activities was $1507,~~343,835~~025 compared to net cash ~~provided~~used by financing activities of $2514,~~716,737~~876 during the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2013. The net cash used in financing activities for the ~~nine~~three months ended ~~September~~March 3031, ~~2012~~2013 was due to payments on financing agreements.

~~The~~During ~~Company refinanced~~ the ~~senior~~first ~~debt~~three onmonths ~~April 22, 2011. The new loan agreement provides for short-term borrowings up to $5,000,000 on a revolving basis at LIBOR plus 3.5%, and a term loan~~ of $32013,~~000,000~~ ~~due~~all ~~in monthly~~ principal ~~installments~~payments ofon ~~$50,000~~the ~~plus~~Company’s ~~interest~~debt atwere ~~LIBOR~~made ~~plus~~within ~~3.5%~~payment ~~through 2016~~terms.

~~During~~The ~~the~~loan ~~first~~agreement ~~quarter~~requires ofa ~~2012~~financial covenant to be measured at March 31, ~~all~~2013. As ~~principal~~more ~~payments~~fully ondiscussed in Note 7, due to the ~~Company’s~~losses ~~debt~~incurred, ~~were~~a ~~made~~violation ~~within~~of ~~payment~~that ~~terms~~debt covenant occurred.

The loan agreement requires a financial covenant to be measured at September 30, 2012. As more fully discussed in Note 7, due to the losses incurred during 2011, a violation of that debt covenant occurred.8

RESULTS OF OPERATIONS

PROJECT REVENUE

The Company's project revenue for the ~~third~~first quarter of ~~2012~~2013 decreased 89% to $85,~~497~~014,~~189~~466 from $95,~~282~~512,~~640~~591 for the ~~third~~first quarter of ~~2011. For the nine month period ended September 30,~~ 2012 ~~the Company’s revenues have increased 4% to $22,920,856 from $21,983,810 for the nine months ended September 30, 2012~~. The decrease in revenue ~~for the third quarter of 2012~~ is ~~due~~attributed to ~~the~~higher ~~company~~project ~~focusing~~volume onin ~~lower~~2012 ~~revenue but higher profit work~~ for ~~that~~the ~~three~~first ~~month~~quarter ~~period,~~of ~~as compared to~~ the ~~2011~~year ~~period~~related ~~which~~to ~~included three large~~ projects that ~~had~~began ~~low~~in ~~margins~~2011. ~~For~~ ~~the~~Backlog ~~nine~~at ~~months~~March ~~ended September 30~~31, ~~2012~~2013 ~~the company did have an increase in revenue due to both the backlog and projects that the Company~~ was ~~able~~approximately ~~to execute in the second quarter of 2012~~$9,900,000.

PROJECT COSTS AND GROSS MARGIN

Project costs for the ~~third~~first quarter of ~~2012~~2013 decreased 3416% to $53,~~563~~345,~~052~~417 from $83,~~458~~979,~~968~~333 for the same period in ~~2011~~2012. Project costs as a percentage of revenues ~~were 65~~were66.57% and 9172.12% for the three months ended ~~September~~March 3031, ~~2012~~2013 and ~~2011~~2012, respectively. Gross margin for the ~~third~~first quarter of ~~2012~~2013 increased slightly to 3433.53% ~~of revenues~~ from 827.98% for the same period in ~~2011~~2013. For the nine month period ended September 30, 2012, project costs decreased $1,739,511 to $16,008,606 from $17,748,117 for the nine months ended September 30, 2011. Gross margin as a percentage of revenues were 30.2% and 19.9% for the nine months ended September 30, 2012 and 2011, respectively. The increase in gross margin is primarily attributed to ~~the~~favorable ~~project mix with recurring~~ projects ~~yielding~~that ~~higher~~produce ~~blended~~high margins. ~~This~~during ~~includes~~the ~~work~~three ~~that~~months ~~was~~ended ~~primarily~~March ~~labor~~31, ~~intensive~~2013 ~~with~~as ~~higher~~compared ~~time~~to ~~and material rates that accounted for additional work that~~ the ~~company~~three ~~was~~months ~~able~~ended toMarch ~~secure~~31, 2012.

OPERATING EXPENSES

Operating expenses for the quarter ended ~~September~~March 3031, ~~2012~~2013 decreased 18% to $1,~~614~~557,~~989~~797 from $1,~~978~~898,~~678~~515 for the same period in ~~2011~~2012. Operating expenses as a percentage of revenues decreased to 1931.01% for the three months ended ~~September~~March 3031, ~~2012~~2013 compared to 2134.34% for the comparable period in ~~2011~~2012.

When comparing the ~~third~~first quarter of ~~2012~~2013 to ~~2011~~the same period in 2012, the ~~increase~~decrease in operating expenses was a combination of the following:

· ~~Payroll~~Professional ~~and~~services ~~payroll~~decreased ~~related~~76% ~~expense~~to ~~decreased~~$50,332 ~~due~~compared to ~~decreases~~$206,000. inDuring ~~staff~~the ~~levels~~first three months of 2012 legal and ~~increases~~audit incosts ~~project~~were ~~manager~~higher ~~billability~~than inthe ~~2012~~first three months of 2013.

· ~~Office~~Equipment expenses, net of usage credit decreased ~~due~~31% ato ~~decline~~$116,676 infrom IT$168,386 due to repairs and ~~telephone~~depreciation ~~expenditures.~~costs ~~Certain~~being ~~office~~lower ~~assets~~for ~~also~~the ~~became~~three ~~fully~~months ~~amortized~~ended ~~during~~March ~~2011~~31, 2013 compared to the three months ended March 31, 2012.

For the nine month period ended September 30, 2012, operating expenses decreased 17% to $5,115,505 from $6,188,784. Operating expenses as a percentage of revenues decreased to 22.3% for the nine months ended September 30, 2012 compared to 28.2% for the same period in 2011.

INTEREST EXPENSE

Interest expense for the quarter ended ~~September~~March 3031, ~~2012~~2013 ~~increased~~decreased 4926% to $~~219~~164,~~880~~259 from $~~147~~223,~~113~~127 for the same period in ~~2011~~2012. ~~Interest~~This ~~costs~~decrease ~~for~~is due to the ~~nine~~amortization ~~months~~expense ~~ended~~related ~~September~~to ~~30,~~the ~~2012~~discount ~~increased~~on ~~47.1%~~the toconvertible ~~$659,312~~notes ~~from~~being ~~$448,197~~expensed ~~for~~during the ~~nine~~three months ended inMarch ~~2011~~31, 2012. ~~This~~The ~~increase is due to the interest related to the~~ convertible ~~notes~~note ~~payable~~discount ~~increasing~~was ~~from~~fully 6%amortized toduring ~~20% under the default rate provision~~2012.

NET INCOME (LOSS) BEFORE INCOME TAXES

Net ~~income~~loss before income taxes for the quarter ended ~~September~~March 3031, ~~2012~~2013 was $149,~~086,330~~962 compared to a net loss before income taxes of ($1553,~~258,043)~~549 for same period in ~~2011~~2012. ~~Net~~The ~~income before income taxes for the nine months ended September 30, 2012 was $1,253,097 compared to the~~ net loss ~~of ($2,275,564) for the nine months ended September 30, 2011. Net income~~ before income taxes is primarily a result of the ~~increase~~lower in project ~~billings~~volume ~~and gross margin, accompanied by a decrease of overhead expenses~~ for the ~~2012~~first ~~periods~~quarter.

INCOME TAX (EXPENSE) BENEFIT

The Company recorded income tax expense of $4,229 for the quarter ended ~~September~~March 3031, ~~2012~~2013 ~~of ($402,300)~~ compared to an income tax benefit of $~~140~~229,~~000~~501 for same period in ~~2011~~2012. The Company ~~recorded~~maintained ~~income~~the deferred tax ~~expense~~valuation ofallowance ~~($475,799)~~at ~~for~~March ~~the~~31, ~~nine months ended September 30~~2013, ~~2012~~and ~~compared~~recognized tono ~~income tax~~ benefit ofattributable ~~$537,000~~to ~~for~~ the ~~nine~~2013 ~~months~~operating ~~September 30, 2011~~loss.

NET INCOME (LOSS)

Net ~~income~~loss for the quarter ended ~~September~~March 3031, ~~2012~~2013 was $~~684~~54,~~030~~191 or ($0.0601) per share basic and ~~$.01 per share~~ diluted compared to net loss of ($1324,~~118,043)~~048 or ($0.0903) per share basic and diluted for same period in ~~2011. Net income (loss) for the nine months ended September 30,~~ 2012 ~~and 2011 was $777,298 and ($1,738,564), respectively~~.

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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, revenue recognition, issuance of stock options and related compensation expense, valuation allowances on deferred tax assets, 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 six months) and revenue is recognized as costs are incurred and billed. 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. Unapproved change orders are recorded at cost in cost on uncompleted contracts applicable to future billings.

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.

The Company maintains a valuation allowance for deferred tax assets to reduce these assets to their realizable amounts. Recognition of these amounts and the adjustment of the corresponding allowance is dependent on the generation of taxable income in current and future years. As circumstances change with respect to management’s expectations of future taxable income, the valuation allowance is adjusted.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Not applicable

Item 4. – Controls and Procedures

(a)	Disclosure Controls and Procedures.

As of the end of the period covering this Form 10-Q, 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 and Acting Principal Accounting 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 Acting Principal Accounting 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 a 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.

The Company’s controls and procedures are designed to provide reasonable assurance of achieving their objectives. The Company's Chief Executive Officer and Acting Principal Accounting Officer determined that, as of the end of the period covered by this report, the 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.

~~Due~~For to the ~~assessment~~quarter ~~that~~ended ~~controls~~March ~~are effective~~31, ~~the~~2013 ~~Company~~there ~~did~~were ~~not~~no ~~enact~~ changes to ~~internal controls during~~ the ~~quarter~~Company’s ~~ended~~internal ~~September 30, 2012~~controls.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

During the quarter ended ~~September~~March 3031, ~~2012~~2013, there were no significant items of litigation or legal proceedings.

Item 1A. Risk Factors.

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

None

Item 5. Other Information.

None

Item 6. Exhibits.

Exhibit 31.1 Certification of Chief Executive Officer

Exhibit 31.2 Certification of Acting Principal Accounting Officer

Exhibit 32.1 Section 1350 Certification of Chief Executive Officer

Exhibit 32.2 Section 1350 Certification of Acting Principal Accounting Officer

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Exhibit 101

101.INS - XBRL Instance Document

101.SCH - XBRL Taxonomy Extension Schema Document

101.CAL - XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF - XBRL Taxonomy Extension Definition Linkbase Document

101.LAB - XBRL Taxonomy Extension Label Linkbase Document

101.PRE - XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

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

OP-TECH Environmental Services, Inc.

(Registrant)

Date: ~~May~~ June 2810, 2013

/s/ Charles B. Morgan

Charles B. Morgan

Chief Executive Officer

/s/ Michael D. McCall

Michael D. McCall

Controller and Treasurer

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Filing Compare · OP TECH ENVIRONMENTAL SERVICES INC