##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF 
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended November 27, 2009
 Commission File Number 1-10655
 ENVIRONMENTAL TECTONICS CORPORATION
 Pennsylvania
    
    23-1714256(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 (Address of principal executive offices, Zip Code)
   þ o
  o þ
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-accelerated Filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
  o þ




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##### 



PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the thirteen and thirty-nine week periods ended
November 27, 2009 and November 28, 2008
    
    
    3Condensed Consolidated Balance Sheets as of November 27, 2009 and February 27, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods ended November 27,
2009 and November 28, 2008
    
    
    5Notes to the Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 4. Controls and Procedures
    
    
    27PART II  OTHER INFORMATION
    
    
    27Item 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    28Signatures
    
    
    29EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (unaudited)
 Environmental
Tectonics Corporation
 
 Condensed Consolidated Statements of Operations

(unaudited)
(in thousands, except share and per share information)
 Thirteen week period
    
    
    Thirty-nine week periodended
    
    
    endedNovember 27,
    
    
    November 28,
    
    
    November 27,
    
    
    November 28,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    $
    10,974
    
    
    $
    8,706
    
    
    $
    30,415
    
    
    $
    27,405Cost of goods sold
    
    
    6,530
    
    
    
    5,749
    
    
    
    16,588
    
    
    
    19,911Gross profit
    
    
    4,444
    
    
    
    2,957
    
    
    
    13,827
    
    
    
    7,494Operating expenses:Selling and administrative
    
    
    2,905
    
    
    
    2,434
    
    
    
    8,599
    
    
    
    8,502Research and development
    
    
    (201
    )
    
    
    247
    
    
    
    254
    
    
    
    9462,704
    
    
    
    2,681
    
    
    
    8,853
    
    
    
    9,448Operating profit (loss)
    
    
    1,740
    
    
    
    276
    
    
    
    4,974
    
    
    
    (1,954
    )Other expenses:Interest expense
    
    
    164
    
    
    
    417
    
    
    
    1,030
    
    
    
    1,287Loss on extinguishment of debt
    
    
    91
    
    
    
    
    
    
    
    315
    
    
    
    Other, net
    
    
    121
    
    
    
    (27
    )
    
    
    242
    
    
    
    (38
    )376
    
    
    
    390
    
    
    
    1,587
    
    
    
    1,249Income (loss) before income taxes
    
    
    1,364
    
    
    
    (114
    )
    
    
    3,387
    
    
    
    (3,203
    )Income tax benefit
    
    
    2,606
    
    
    
    
    
    
    
    2,606
    
    
    
    Income (loss) before noncontrolling interest
    
    
    3,970
    
    
    
    (114
    )
    
    
    5,993
    
    
    
    (3,203
    )Income (loss) attributable to noncontrolling interest
    
    
    (8
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    (6
    )Net income (loss)
    
    
    3,978
    
    
    
    (113
    )
    
    
    5,997
    
    
    
    (3,197
    )Preferred stock dividends
    
    
    (594
    )
    
    
    (230
    )
    
    
    (1,289
    )
    
    
    (695
    )Income (loss) applicable to common shareholders
    
    $
    3,384
    
    
    $
    (343
    )
    
    $
    4,708
    
    
    $
    (3,892
    )Per share information:Earnings (loss) per common share:Basic
    
    $
    0.37
    
    
    $
    (0.04
    )
    
    $
    0.52
    
    
    $
    (0.43
    )Diluted
    
    $
    0.19
    
    
    $
    (0.04
    )
    
    $
    0.28
    
    
    $
    (0.43
    )Weighted average common shares:Basic
    
    
    9,071,000
    
    
    
    9,035,000
    
    
    
    9,066,000
    
    
    
    9,035,000Diluted
    
    
    21,277,000
    
    
    
    9,035,000
    
    
    
    21,290,000
    
    
    
    9,035,000
  3




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##### Table of Contents



Environmental
Tectonics Corporation
 
 Condensed Consolidated Balance Sheets

(in thousands, except share information)
 November 27,
    
    
    February 27,2009
    
    
    2009(unaudited)ASSETSCash and cash equivalents
    
    $
    2,973
    
    
    $
    520Restricted cash
    
    
    3,018
    
    
    
    4,454Accounts receivable, net of allowance for bad debt of $411 and $364
    
    
    9,194
    
    
    
    5,100Costs and estimated earnings in excess of billings on uncompleted long-term contracts
    
    
    4,470
    
    
    
    2,460Inventories, net
    
    
    6,084
    
    
    
    4,435Deferred tax assets, current
    
    
    5,683
    
    
    
    2,431Prepaid expenses and other current assets
    
    
    890
    
    
    
    398Total current assets
    
    
    32,312
    
    
    
    19,798Property, plant and equipment, at cost, net
    
    
    13,581
    
    
    
    15,786Construction in progress
    
    
    
    
    
    
    275Software development costs, net of accumulated amortization of $13,773 and $13,105
    
    
    712
    
    
    
    1,013Other assets
    
    
    411
    
    
    
    406Total assets
    
    $
    47,016
    
    
    $
    37,278LIABILITIESCurrent portion of long-term debt
    
    $
    130
    
    
    $
    9Accounts payable  trade
    
    
    2,233
    
    
    
    2,105Billings in excess of costs and estimated earnings on uncompleted long-term contracts
    
    
    4,314
    
    
    
    4,155Customer deposits
    
    
    2,164
    
    
    
    2,397Accrued interest and dividends
    
    
    725
    
    
    
    4,197Deferred tax liabilities, current
    
    
    
    
    
    
    Other accrued liabilities
    
    
    2,739
    
    
    
    2,251Total current liabilities
    
    
    12,305
    
    
    
    15,114Long-term obligations, less current portion:Credit facility payable to bank
    
    
    13,843
    
    
    
    10,510Promissory note payable
    
    
    
    
    
    
    1,891Subordinated convertible debt
    
    
    
    
    
    
    9,664Other long-term debt
    
    
    26
    
    
    
    713,869
    
    
    
    22,072Deferred tax liabilities
    
    
    3,003
    
    
    
    2,350Unearned interest
    
    
    95
    
    
    
    152Total liabilities
    
    
    29,272
    
    
    
    39,688Commitments and contingencies
    
    
    
    
    
    
    Cumulative convertible participating preferred stock, Series B, $.05 par value, 15,000 shares authorized; 6,000 shares issued and outstanding at
February 27, 2009
    
    
    
    
    
    
    6,000Cumulative convertible participating preferred stock, Series C, $.05 par value, 3,300 shares authorized, issued and outstanding at February 27, 2009
    
    
    
    
    
    
    3,300STOCKHOLDERS EQUITY (DEFICIENCY)Cumulative convertible participating preferred stock, Series D, $.05 par value, 11,000 shares authorized; 155 shares outstanding
    
    
    155
    
    
    
    Cumulative convertible participating preferred stock, Series E, $.05 par value, 25,000 shares authorized; 23,741 shares outstanding
    
    
    23,741
    
    
    
    Common stock, $.05 par value, 50,000,000 shares authorized; 9,073,052 and 9,049,351 shares issued and outstanding
    
    
    453
    
    
    
    452Additional paid-in capital
    
    
    14,595
    
    
    
    15,399Accumulated other comprehensive loss
    
    
    (189
    )
    
    
    (557
    )Accumulated deficit
    
    
    (21,049
    )
    
    
    (27,046
    )Total stockholders equity (deficiency)
    
    
    17,706
    
    
    
    (11,752
    )Noncontrolling interest
    
    
    38
    
    
    
    42Total stockholders equity (deficiency)
    
    
    17,744
    
    
    
    (11,710
    )Total liabilities and stockholders equity (deficiency)
    
    $
    47,016
    
    
    $
    37,278
  4




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##### Table of Contents



Environmental Tectonics Corporation
 
 Condensed Consolidated Statements of Cash Flows 
(unaudited) 
(in thousands)
 Thirty-nine week period endedNovember  27,
    
    
    November 28,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    5,997
    
    
    $
    (3,197
    )Adjustments to reconcile net income (loss) to net cash provided by operating activities:Depreciation and amortization
    
    
    1,458
    
    
    
    1,668Decrease in valuation allowance for deferred tax assets
    
    
    (2,606
    )
    
    
    Loss on extinguishment of debt
    
    
    315
    
    
    
    Accretion of debt discount
    
    
    225
    
    
    
    223Increase in allowances for accounts receivable and inventories, net
    
    
    497
    
    
    
    (5
    )Loss attributable to noncontrolling interest
    
    
    (4
    )
    
    
    (6
    )Stock compensation expense
    
    
    
    
    
    
    43Changes in operating assets and liabilities:Accounts receivable
    
    
    (4,141
    )
    
    
    (467
    )Costs and estimated earnings in excess of billings on uncompleted long-term contracts
    
    
    (2,010
    )
    
    
    2,696Inventories
    
    
    840
    
    
    
    1,702Prepaid expenses and other assets
    
    
    48
    
    
    
    (229
    )Accounts payable
    
    
    128
    
    
    
    (751
    )Billings in excess of costs and estimated earnings on uncompleted long-term contracts
    
    
    159
    
    
    
    (2,296
    )Customer deposits
    
    
    (233
    )
    
    
    (320
    )Other accrued liabilities
    
    
    492
    
    
    
    1,336Net cash provided by operating activities
    
    
    1,165
    
    
    
    397Cash flows from investing activities:Acquisition of equipment
    
    
    (1,337
    )
    
    
    (982
    )Capitalized software development costs
    
    
    (279
    )
    
    
    (227
    )Payments for construction in progress
    
    
    
    
    
    
    (381
    )Net cash used in investing activities
    
    
    (1,616
    )
    
    
    (1,590
    )Cash flows from financing activities:Borrowings under lines of credit, net
    
    
    3,333
    
    
    
    100Repayment of note payable
    
    
    (2,000
    )
    
    
    Issuance of common stock
    
    
    1
    
    
    
    Borrowings (payments) of other debt obligations
    
    
    140
    
    
    
    (7
    )Payment of dividends
    
    
    (374
    )
    
    
    Payment of claim settlement costs
    
    
    
    
    
    
    (2,275
    )Decrease in restricted cash
    
    
    1,436
    
    
    
    2,052Net cash provided by (used in) financing activities
    
    
    2,536
    
    
    
    (130
    )Effect of exchange rate changes on cash
    
    
    368
    
    
    
    Net increase (decrease) in cash
    
    
    2,453
    
    
    
    (1,323
    )Cash at beginning of period
    
    
    520
    
    
    
    1,871Cash at end of period
    
    $
    2,973
    
    
    $
    548Supplemental schedule of cash flow information:Interest paid
    
    $
    364
    
    
    $
    383Income taxes paid
    
    
    
    
    
    
    Supplemental information on non-cash operating and investing activities:Accrued dividends on preferred stock
    
    $
    319
    
    
    $
    695
    5




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##### Table of Contents



Environmental Tectonics Corporation
 
 Notes to the Condensed Consolidated Financial Statements
 1. Summary of Significant Accounting Policies
 Basis of Presentation
     Earnings Per Common Share
   
    
    Series D Preferred Stock of $55,000 at $0.94 per share, equating to 58,511 shares of
common stock, issued in April 2009;
    
    Series D Preferred Stock of $100,000 at $1.11 per share, equating to 90,090 shares of
common stock, issued in July 2009;
    
    Series E Preferred Stock of $23,741,000 at $2.00 per share, equating to 11,870,500
shares of common stock, issued in July 2009.
   6




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Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
  Thirteen week period ended
    
    
    Thirty-nine week period endedNovember 27, 2009
    
    
    November 27, 2009Weighted
    
    
    per
    
    
    
    
    
    
    Weighted
    
    
    perIncome
    
    
    average
    
    
    share
    
    
    Income
    
    
    average
    
    
    share(in thousands)
    
    
    shares
    
    
    amount
    
    
    (in thousands)
    
    
    shares
    
    
    amountNet income
    
    $
    3,978
    
    
    
    
    
    
    
    
    
    
    $
    5,997Less preferred stock dividends
    
    
    (594
    )
    
    
    
    
    
    
    
    
    
    
    (1,289
    )Basic earnings per share:Basic earnings available to common shareholders
    
    $
    3,384
    
    
    
    9,071,000
    
    
    $
    0.37
    
    
    $
    4,708
    
    
    
    9,066,000
    
    
    $
    0.52Effect of dilutive securities:Preferred stock
    
    
    
    
    
    
    12,019,000
    
    
    
    
    
    
    
    
    
    
    
    12,019,000Stock warrants
    
    
    
    
    
    
    187,000
    
    
    
    
    
    
    
    
    
    
    
    205,000Diluted earnings per share:Basic earnings available to common shareholders
    
    $
    3,384
    
    
    
    
    
    
    
    
    
    
    $
    5,997Add: Preferred stock dividend
    
    
    594
    
    
    
    
    
    
    
    
    
    
    
    1,289Income
available to common shareholders plus effect of dilutive securities
    
    $
    3,978
    
    
    
    21,277,000
    
    
    $
    0.19
    
    
    $
    5,997
    
    
    
    21,290,000
    
    
    $
    0.28
 Research and Development Costs
  Significant Accounting Policies
   Income Taxes
    Recent Accounting Pronouncements
   7




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##### Table of Contents



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
  fair value selling price
 2. Long-Term Obligations and Credit Arrangements
 Lenfest Financing Transaction
   Lenfest Credit Facility
  Increase in Authorized Common Shares
  8




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##### Table of Contents



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 Exchange of Existing Instruments for Series E Preferred Stock
     BalanceuponDescription
    
    exchangeSubordinated convertible note
    
    $
    10,000,000Accrued interest on subordinated convertible note
    
    
    2,275,000Series B Preferred stock
    
    
    6,000,000Series C Preferred Stock
    
    
    3,300,000Accrued dividends on preferred stock, Series B and C
    
    
    2,166,000Series E Preferred Stock issued in exchange
    
    $
    23,741,000
  Lenfest Promissory Note
   9




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Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 Bank Credit and Facility
 Increased PNC Bank Credit Facility and Issuance of New Guarantee
        10




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##### Table of Contents



Environmental Tectonics Corporation  Notes to the Condensed Consolidated Financial Statements, continued
    Subordinated Convertible Debt
   Dedicated Line of Credit Agreement with PNC Bank
   ETC-PZL Project Financing
   November 27,
    
    February 27,2009
    
    2009(in thousands)Note payable to bank
    
    $
    13,360
    
    
    $
    10,510ETC-PZL project financing
    
    
    604
    
    
    
    Automobile loan
    
    
    9
    
    
    
    16Other
    
    
    26
    
    
    
    Promissory note, net of unamortized discount of $109
    
    
    
    
    
    
    1,891Subordinated convertible debt, net of unamortized discount $336
    
    
    
    
    
    
    9,664Total debt obligations
    
    
    13,999
    
    
    
    22,081Less current maturities
    
    
    130
    
    
    
    9Long-term obligations, net of current maturities
    
    $
    13,869
    
    
    $
    22,072
 11




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##### Table of Contents



Environmental Tectonics Corporation  Notes to the Condensed Consolidated Financial Statements, continued
 3. Inventories
  November 27,
    
    
    February 27,2009
    
    
    2009(unaudited)(in thousands)Raw materials
    
    $
    88
    
    
    $
    92Work in process
    
    
    5,213
    
    
    
    3,564Finished goods
    
    
    783
    
    
    
    779Total
    
    $
    6,084
    
    
    $
    4,435
  4. Accounts Receivable:
  November 27,
    
    
    February 27,2009
    
    
    2009(unaudited)(in thousands)U.S. government receivables
    
    $
    2,509
    
    
    $
    551U.S. commercial receivables
    
    
    2,055
    
    
    
    1,002International receivables
    
    
    5,041
    
    
    
    3,9119,605
    
    
    
    5,464Less: allowance for doubtful accounts
    
    
    (411
    )
    
    
    (364
    )$
    9,194
    
    
    $
    5,100
 5. Fair Value of Financial Instruments
  
    
    Level 1: Observable inputs such as quoted prices in active markets for identical
assets or liabilities;
    
    Level 2: Inputs other than quoted prices that are observable for the asset or
liability, either directly or indirectly; these include quoted prices for similar assets
or liabilities in active markets and quoted prices for identical assets or liabilities in
markets that are not active;
    
    Level 3: Unobservable inputs that are supported by little or no market activity, which
require the reporting entitys judgment or estimation.
 12




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##### Table of Contents



Environmental Tectonics Corporation  Notes to the Condensed Consolidated Financial Statements, continued
  Fair Value Measurement atNovember 27, 2009(amounts in thousands)Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalLiabilitiesCredit facility payable to bank
    
    $
    
    
    
    $
    
    
    
    $
    14,182
    
    
    $
    14,182ETC-PZL contract financing
    
    
    
    
    
    
    
    
    
    
    558
    
    
    
    558Dedicated line of credit with bankInterest rate swap agreements
    
    
    
    
    
    
    146
    
    
    
    
    
    
    
    146Total
    
    $
    
    
    
    $
    146
    
    
    $
    14,740
    
    
    $
    14,886
   7. Income Taxes
     13




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##### Table of Contents



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  Thirty-nine weekperiod endedNovember 27, 2009Statutory income tax
    
    
    (34.0
    )%State income tax, net of federal tax benefit
    
    
    (3.4
    )Research and experimentation and other tax credits
    
    
    4.3Benefit of foreign and foreign-source income or loss
    
    
    (3.2
    )Change in valuation allowance
    
    
    113.0Effect of change in effective tax rate
    
    
    (2.6
    )Other, net
    
    
    0.0773.3
    %
   (in thousands)November 27,
    
    
    February 27,2009
    
    
    2009Deferred tax assets:Net operating loss and credits
    
    $
    15,527
    
    
    $
    16,520Vacation reserve
    
    
    74
    
    
    
    74Inventory reserve
    
    
    843
    
    
    
    676Receivable reserve
    
    
    153
    
    
    
    135Warranty reserve
    
    
    63
    
    
    
    63Compensation and other reserves
    
    
    312
    
    
    
    76Stock options
    
    
    96
    
    
    
    96ETC  PZL deferred tax asset
    
    
    74
    
    
    
    81Other, net
    
    
    64
    
    
    
    7417,206
    
    
    
    17,795Valuation Reserve
    
    
    (11,523
    )
    
    
    (15,364
    )Total current deferred tax asset
    
    
    5,683
    
    
    
    2,431Deferred tax liabilities:Amortization of capitalized software
    
    
    343
    
    
    
    462Depreciation
    
    
    2,660
    
    
    
    1,888Total non-current deferred tax liability
    
    
    3,003
    
    
    
    2,350Net deferred tax asset
    
    $
    2,680
    
    
    $
    81
 14




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##### Table of Contents



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 8. Commitments and Contingencies
 Mends International, Ltd.
  Administrative Agreement with U.S. Navy.
  9. Stock Exchange Listing
 Delisting from NYSE AMEX LLC
   15




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Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 10. Segment Information (unaudited):
  (in thousands)TSG
    
    CSG
    
    TotalThirteen week period ended and as of November 27, 2009:Net sales
    
    $
    5,720
    
    
    $
    5,254
    
    
    $
    10,974Interest expense (income)
    
    
    252
    
    
    
    (88
    )
    
    
    164Depreciation and amortization
    
    
    178
    
    
    
    261
    
    
    
    439Operating profit
    
    
    1,123
    
    
    
    938
    
    
    
    2,061Identifiable assets
    
    
    11,797
    
    
    
    6,094
    
    
    
    17,891Expenditures for segment assets
    
    
    460
    
    
    
    179
    
    
    
    639Thirteen week period ended and as of November 28, 2008:Net sales
    
    $
    5,552
    
    
    $
    3,154
    
    
    $
    8,706Interest expense
    
    
    309
    
    
    
    108
    
    
    
    417Depreciation and amortization
    
    
    162
    
    
    
    393
    
    
    
    555Operating profit (loss)
    
    
    917
    
    
    
    (373
    )
    
    
    544Identifiable assets
    
    
    6,105
    
    
    
    5,139
    
    
    
    11,244Expenditures for segment assets
    
    
    100
    
    
    
    299
    
    
    
    399
 2009
    
    
    2008Reconciliation to consolidated amountsSegment assets
    
    $
    17,891
    
    
    $
    11,244Corporate assets
    
    
    29,125
    
    
    
    19,231Total assets
    
    $
    47,016
    
    
    $
    30,475Segment operating profit
    
    $
    2,061
    
    
    $
    544Interest expense
    
    
    164
    
    
    
    417Total profit for segments
    
    
    1,897
    
    
    
    127Corporate home office expenses
    
    
    321
    
    
    
    268Loss on extinguishment of debt
    
    
    91
    
    
    
    Other expenses, net
    
    
    121
    
    
    
    (27
    )Income tax benefit
    
    
    (2,606
    )
    
    
    Noncontrolling interest
    
    
    (8
    )
    
    
    (1
    )Net profit (loss)
    
    $
    3,978
    
    
    $
    (113
    )
 16




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Environmental Tectonics Corporation  Notes to the Condensed Consolidated Financial Statements, continued
 (in thousands)
 TSG
    
    
    CSG
    
    
    TotalThirty-nine week period ended and as of November 27, 2009:Net sales
    
    $
    19,026
    
    
    $
    11,389
    
    
    $
    30,415Interest expense
    
    
    679
    
    
    
    351
    
    
    
    1,030Depreciation and amortization
    
    
    710
    
    
    
    748
    
    
    
    1,458Operating profit
    
    
    4,955
    
    
    
    1,084
    
    
    
    6,039Identifiable assets
    
    
    11,797
    
    
    
    6,094
    
    
    
    17,891Expenditures for segment assets
    
    
    871
    
    
    
    466
    
    
    
    1,337Thirty-nine week period ended and as of November 28,
2008:Net sales
    
    $
    14,051
    
    
    $
    13,354
    
    
    $
    27,405Interest expense
    
    
    952
    
    
    
    335
    
    
    
    1,287Depreciation and amortization
    
    
    467
    
    
    
    1,201
    
    
    
    1,668Operating loss
    
    
    (691
    )
    
    
    (239
    )
    
    
    (930
    )Identifiable assets
    
    
    6,105
    
    
    
    5,139
    
    
    
    11,244Expenditures for segment assets
    
    
    1,232
    
    
    
    358
    
    
    
    1,590Reconciliation to consolidated amounts
    
    
    2009
    
    
    
    2008Segment assets
    
    $
    17,891
    
    
    $
    11,244Corporate assets
    
    
    29,125
    
    
    
    19,231Total assets
    
    $
    47,016
    
    
    $
    30,475Segment operating profit (loss)
    
    $
    6,039
    
    
    $
    (930
    )Interest expense
    
    
    1,030
    
    
    
    1,287Total profit (loss) for segments
    
    
    5,009
    
    
    
    (2,217
    )Corporate home office expenses
    
    
    1,065
    
    
    
    1,024Loss on extinguishment of debt
    
    
    315
    
    
    
    Other expenses, net
    
    
    242
    
    
    
    (38
    )Income tax benefit
    
    
    (2,606
    )
    
    
    Noncontrolling interest
    
    
    (4
    )
    
    
    (6
    )Net profit/(loss)
    
    $
    5,997
    
    
    $
    (3,197
    )
 Thirteen weeks ended November 27, 2009
   Thirty-nine weeks ended November 27, 2009
   17




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Environmental Tectonics Corporation  Notes to the Condensed Consolidated Financial Statements, continued
 11. Sales Backlog
 ,
  18




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
         
    
    high bid and proposal activity which utilized engineering resources which otherwise
would have been applied to existing contract requirements, resulting in delayed revenue recognition
on long-term contracts;
    
    the continuing cost of development and marketing efforts for our Authentic Tactical
Fighting Systems (ATFS);
    
    continued technology to advance equipment for the National Aerospace Training and
Research (NASTAR) Center;   19




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##### Table of Contents




    
    continued development of software for our Advanced Disaster Management Scenario
(ADMS) product line;
  
    
    cash considerations;
     Income Taxes
    20




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##### Table of Contents



Results of Operations
 Thirteen weeks ended November 27, 2009 compared to thirteen weeks ended November 28, 2008
 We have historically experienced significant variability in our quarterly revenue, earnings
and other operating results, and our performance may fluctuate significantly in the future.
 Summary Table of ResultsThirteen weeks ended:
    
    Variance
    
    VarianceNovember 27, 2009
    
    November 28, 2008
    
    $
    
    %(amounts in thousands)
    
    ( )=UnfavorableSales:Domestic
    
    $
    4,392
    
    
    $
    2,702
    
    
    $
    1,690
    
    
    
    62.6
    %US Government
    
    
    2,321
    
    
    
    367
    
    
    
    1,954
    
    
    
    532.4
    %International
    
    
    4,261
    
    
    
    5,637
    
    
    
    (1,376
    )
    
    
    (24.4
    )%Total Sales
    
    
    10,974
    
    
    
    8,706
    
    
    
    2,268
    
    
    
    26.1
    %Gross Profit
    
    
    4,444
    
    
    
    2,957
    
    
    
    1,487
    
    
    
    50.3
    %Selling, general and administrative
    
    
    2,905
    
    
    
    2,434
    
    
    
    (471
    )
    
    
    (19.4
    )%Research and development
    
    
    (201
    )
    
    
    247
    
    
    
    448
    
    
    
    181.4
    %Operating profit
    
    
    1,740
    
    
    
    276
    
    
    
    1,464
    
    
    
    530.4
    %Interest expense, net
    
    
    164
    
    
    
    417
    
    
    
    253
    
    
    
    60.7
    %Other expense, net
    
    
    121
    
    
    
    (27
    )
    
    
    (148
    )
    
    
    548.2
    %Loss on extinguishment of debt
    
    
    91
    
    
    
    
    
    
    
    (91
    )
    
    
    n/aIncome tax benefit
    
    
    (2,606
    )
    
    
    
    
    
    
    2,606
    
    
    
    n/aMinority interest
    
    
    (8
    )
    
    
    (1
    )
    
    
    7
    
    
    
    700.0
    %Net income (loss)
    
    $
    3,978
    
    
    $
    (113
    )
    
    $
    4,091
    
    
    
    3,620.4
    %Net income (loss) per common share (basic)
    
    $
    0.37
    
    
    $
    (0.04
    )
    
    $
    0.41
    
    
    
    1,025.0
    %Net income (loss) per common share (diluted)
    
    $
    0.19
    
    
    $
    (0.04
    )
    
    $
    0.23
    
    
    
    575.0
    %
 Net Income
  Sales
  Domestic Sales
  U.S. Government Sales
  21




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##### Table of Contents



International Sales
   Gross Profit
  Selling and Administrative Expenses
  Research and Development Expenses
   Interest Expense
  Other Income/Expense
  Loss on Extinguishment of Debt
  Income Taxes
  22




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##### Table of Contents



Thirty-nine weeks ended November 27, 2009 compared to thirty-nine weeks ended November 28, 2008
 We have historically experienced significant variability in our revenue, earnings and other
operating results, and our performance may fluctuate significantly in the future.
 Summary Table of ResultsThirty-nine weeks ended:
    
    Variance
    
    VarianceNovember 27, 2009
    
    November 28, 2008
    
    $
    
    %(amounts in thousands)
    
    ( )  =UnfavorableSales:Domestic
    
    $
    9,228
    
    
    $
    12,348
    
    
    $
    (3,120
    )
    
    
    (25.3
    )%US Government
    
    
    5,833
    
    
    
    1,742
    
    
    
    4,091
    
    
    
    234.9
    %International
    
    
    15,354
    
    
    
    13,315
    
    
    
    2,039
    
    
    
    15.3
    %Total Sales
    
    
    30,415
    
    
    
    27,405
    
    
    
    3,010
    
    
    
    11.0
    %Gross Profit
    
    
    13,827
    
    
    
    7,494
    
    
    
    6,333
    
    
    
    84.5
    %Selling, general and administrative
    
    
    8,599
    
    
    
    8,502
    
    
    
    (97
    )
    
    
    (1.1
    )%Research and development
    
    
    254
    
    
    
    946
    
    
    
    692
    
    
    
    73.2
    %Operating profit (loss)
    
    
    4,974
    
    
    
    (1,954
    )
    
    
    6,928
    
    
    
    354.6
    %Interest expense, net
    
    
    1,030
    
    
    
    1,287
    
    
    
    257
    
    
    
    20.0
    %Other expense, net
    
    
    242
    
    
    
    (38
    )
    
    
    (280
    )
    
    
    (736.8
    )%Loss on extinguishment of debt
    
    
    315
    
    
    
    
    
    
    
    (315
    )
    
    
    n/aIncome tax benefit
    
    
    (2,606
    )
    
    
    
    
    
    
    2,606
    
    
    
    n/aMinority interest
    
    
    (4
    )
    
    
    (6
    )
    
    
    (2
    )
    
    
    (33.3
    )%Net income (loss)
    
    $
    5,997
    
    
    $
    (3,197
    )
    
    $
    9,194
    
    
    
    287.6
    %Net income (loss) per common share (basic)
    
    $
    0.52
    
    
    $
    (0.43
    )
    
    $
    0.95
    
    
    
    220.9
    %Net income (loss) per common share (diluted)
    
    $
    0.28
    
    
    $
    (0.43
    )
    
    $
    0.71
    
    
    
    165.1
    %
 Net Income
  Sales
  23




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##### Table of Contents



Domestic Sales
  U.S. Government Sales
  International Sales
   Gross Profit
  Selling and Administrative Expenses
  Research and Development Expenses
   Interest Expense
  24




---



##### Table of Contents



Other Income/Expense, Net
  Loss on Extinguishment of Debt
  Income Taxes
   Liquidity and Capital Resources
        25




---



##### Table of Contents



Backlog
 ,
  26




---



##### Table of Contents



Item 4. Controls and Procedures
     
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Mends International, Ltd.
  Administrative Agreement with U.S. Navy
  Other Matters
  27




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Number
    
    Item3.1(a)
    
    Registrants Articles of Incorporation, as amended, were filed as
Exhibit 3.1 to Registrants Form 10-K for the year ended February
28, 1997 and are incorporated herein by reference.3.1(b)
    
    Series D Preferred Stock Agreement, dated as of April 24, 2009,
between the Registrant and H.F. Lenfest, was file on April 27, 2009
as Exhibit 10.1 to Form 8-K and is incorporated herein by
reference.3.1(c)
    
    Series E Preferred Stock Agreement, dated as of July 2, 2009,
between the Registrant and H.F. Lenfest ,was filed on July 9, 2009
as Exhibit 3.1 to Form 8-K and is incorporated herein by reference.3.2
    
    Registrants amended and restated By-Laws were filed as Exhibit 3.2
to Registrants Form 8-K dated May 25, 2005, and are incorporated
herein by reference.31.1
    
    Certification dated January 11, 2010 pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 made by William F. Mitchell, Chief Executive Officer.31.2
    
    Certification dated January 11, 2010 pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 made by Duane D. Deaner, Chief Financial Officer.32
    
    Certification dated January 11, 2010 pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 made by William F. Mitchell, Chief Executive Officer, and
Duane D. Deaner, Chief Financial Officer.
 28




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##### Table of Contents



Signatures
  ENVIRONMENTAL TECTONICS CORPORATION
 Date: January 11, 2010By:

    /s/ William F. MitchellWilliam F. MitchellPresident and ChiefExecutive Officer(Principal Executive Officer)Date: January 11, 2010By:

    /s/ Duane DeanerDuane Deaner,Chief Financial Officer(Principal Financial and Accounting Officer)
 29