##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

(Mark One)

|                                                                                           
|-------------------------------------------------------------------------------------------
|[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|                                                                                           
|For the quarterly period ended September 30, 2002                                          
|                                                                                           
|or                                                                                         
|                                                                                           
|
|                                                                                           

For the transition period from ______________________ to _________________________

Commission File Number: 001-8988

ECC International Corp.

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 23-1714658                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|2001 West Oak Ridge Road, Orlando, FL                          |  | 32809-3803                          
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

(407) 859-7410

---

(Registrants telephone number, including area code)


Not Applicable

---

(Former name, former address and former fiscal year, if changed since last report)


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 twelve 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.

[X] Yes      [   ] No

As of November 11, 2002 there were 7,878,194 shares of the Registrants
Common Stock, $.10 par value per share, issued and outstanding.





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##### 



PART I. FINANCIAL STATEMENTS

ITEM 1. FINANCIAL
STATEMENTS


ECC INTERNATIONAL CORP. AND
SUBSIDIARIES


CONSOLIDATED STATEMENTS OF
OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30,
2002 AND 2001(In Thousands Except Per Share Data)
(Unaudited)


|                                                 |                                      |                              |       |              |       |              |       |       |       | 
|------------------------------------------------ | ------------------------------------ | ---------------------------- | ----- | ------------ | ----- | ------------ | ----- | ----- | ----- | 
|                                                 |                                      |                              |       | Three Months |       | Three Months
|                                                 |                                      |                              |       | Ended        |       | Ended       
|                                                 |                                      |                              |       | 9/30/2002    |       | 9/30/2001   
|                                                 |                                      |                              |       |              |       |             
|Sales                                            |                                      | $                            | 7,353 |              |       | $            | 6,147 |      
|Cost of Sales                                    |                                      |                              | 4,572 |              |       |              | 4,430 |      
|                                                 |                                      |                              |       |              |       |              |       |      
|Gross Profit                                     |                                      |                              | 2,781 |              |       |              | 1,717 |      
|                                                 |                                      |                              |       |              |       |              |       |      
|Expenses:                                        |                                      |                              |       |              |       |              |       |      
|                                                 | Selling, General & Administrative    |                              |       | 1,586        |       |              |       | 1,797 |      
|                                                 | Independent Research and Development |                              |       | 284          |       |              |       | 484   |      
|                                                 |                                      |                              |       |              |       |              |       |      
|                                                 |                                      | Total Expenses               |       |              | 1,870 |              |       |       | 2,281 | 
|                                                 |                                      |                              |       |              |       |              |       |      
|Operating Income/(Loss)                          |                                      |                              | 911   |              |       |              | (564  | )    
|                                                 |                                      |                              |       |              |       |              |       |      
|Other Income/(Expense):                          |                                      |                              |       |              |       |              |       |      
|                                                 | Interest Income                      |                              |       | 26           |       |              |       | 8     |      
|                                                 | Interest Expense                     |                              |       | (21          | )     |              |       | (24   | )    
|                                                 | Other  Net                          |                              |       | (19          | )     |              |       | 44    |      
|                                                 |                                      |                              |       |              |       |              |       |      
|                                                 |                                      | Total Other Income/(Expense) |       |              | (14   | )            |       |       | 28    | 
|                                                 |                                      |                              |       |              |       |              |       |      
|Income/(Loss) Before Income Taxes                |                                      |                              | 897   |              |       |              | (536  | )    
|Provision/(Benefit) for Income Taxes             |                                      |                              |      |              |       |              |      |      
|                                                 |                                      |                              |       |              |       |              |       |      
|Net Income/(Loss)                                |                                      | $                            | 897   |              |       | $            | (536  | )    
|                                                 |                                      |                              |       |              |       |              |       |      
|Net Income/(Loss) Per Common Share-Basic/Diluted |                                      | $                            | 0.11  |              |       | $            | (0.07 | )    
|                                                 |                                      |                              |       |              |       |              |       |      

See accompanying notes to the consolidated financial statements

2



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In Thousands)


|                                    |                                                                            |                      |        |             |        |           |        |       |        | 
|----------------------------------- | -------------------------------------------------------------------------- | -------------------- | ------ | ----------- | ------ | --------- | ------ | ----- | ------ | 
|                                    |                                                                            |                      |        | (Unaudited) |        | (Audited)
|                                    |                                                                            |                      |        | 9/30/2002   |        | 6/30/2002
|                                    |                                                                            |                      |        |             |        |          
|ASSETS                              |                                                                            |                      |        |             |        |           |        |      
|Current Assets:                     |                                                                            |                      |        |             |        |           |        |      
|                                    | Cash                                                                       |                      | $      | 4,359       |        |           | $      | 6,280 |       
|                                    | Accounts Receivable                                                        |                      |        | 4,350       |        |           |        | 2,152 |       
|                                    | Cost and Estimated Earnings in Excess
of Billings on Uncompleted Contracts |                      |        | 10,176      |        |           |        | 9,458 |       
|                                    | Inventories                                                                |                      |        | 774         |        |           |        | 920   |       
|                                    | Prepaid Expenses and Other                                                 |                      |        | 197         |        |           |        | 274   |       
|                                    |                                                                            |                      |        |             |        |           |        |      
|                                    |                                                                            | Total Current Assets |        |             | 19,856 |           |        |       | 19,084 | 
|                                    |                                                                            |                      |        |             |        |           |        |      
|Property, Plant and Equipment  Net |                                                                            |                      | 11,599 |             |        |           | 11,823 |      
|Other Assets                        |                                                                            |                      | 22     |             |        |           | 32     |      
|                                    |                                                                            |                      |        |             |        |           |        |      
|                                    |                                                                            | Total Assets         |        | $           | 31,477 |           |        | $     | 30,939 | 
|                                    |                                                                            |                      |        |             |        |           |        |      

Continued...

3



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Continued)
(In Thousands Except Share and Per Share Data)


|                                         |                                                                                                                                            |                                          |        |             |        |           |        |       |        | 
|---------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------- | ------ | ----------- | ------ | --------- | ------ | ----- | ------ | 
|                                         |                                                                                                                                            |                                          |        | (Unaudited) |        | (Audited)
|                                         |                                                                                                                                            |                                          |        | 9/30/2002   |        | 6/30/2002
|                                         |                                                                                                                                            |                                          |        |             |        |          
|LIABILITIES & STOCKHOLDERS EQUITY       |                                                                                                                                            |                                          |        |             |        |           |        |      
|Current Liabilities:                     |                                                                                                                                            |                                          |        |             |        |           |        |      
|                                         | Accounts Payable                                                                                                                           |                                          | $      | 1,798       |        |           | $      | 2,121 |       
|                                         | Accrued Expenses and Other                                                                                                                 |                                          |        | 1,719       |        |           |        | 1,972 |       
|                                         |                                                                                                                                            |                                          |        |             |        |           |        |      
|                                         |                                                                                                                                            | Total Current Liabilities                |        |             | 3,517  |           |        |       | 4,093  | 
|                                        
|Deferred Income Taxes                    |                                                                                                                                            |                                          | 61     |             |        |           | 61     |      
|                                         |                                                                                                                                            |                                          |        |             |        |           |        |      
|                                         |                                                                                                                                            | Total Liabilities                        |        |             | 3,578  |           |        |       | 4,154  | 
|                                         |                                                                                                                                            |                                          |        |             |        |           |        |      
|COMMITMENTS AND CONTINGENCIES            |                                                                                                                                            |                                          |        |             |        |           |        |      
|                                        
|Stockholders Equity:                    |                                                                                                                                            |                                          |        |             |        |           |        |      
|                                         | Preferred Stock, $.10 par; 1,000,000 shares
authorized; none issued and outstanding                                                        |                                          |        |            |        |           |        |      |       
|                                         | Common Stock, $.10 par; 20,000,000 shares authorized;
issued and outstanding, 8,605,194 and 7,878,194
(8,577,608 and 7,850,608 at 6/30/02) |                                          |        | 860         |        |           |        | 858   |       
|Note Receivable from Stockholder         |                                                                                                                                            |                                          |       |             |        |           | (168   | )    
|Capital in Excess of Par                 |                                                                                                                                            |                                          | 25,540 |             |        |           | 25,493 |      
|Retained Earnings                        |                                                                                                                                            |                                          | 4,408  |             |        |           | 3,511  |      
|Treasury Stock, at cost (727,000 shares) |                                                                                                                                            |                                          | (2,909 | )           |        |           | (2,909 | )    
|                                         |                                                                                                                                            |                                          |        |             |        |           |        |      
|                                         |                                                                                                                                            | Total Stockholders Equity               |        |             | 27,899 |           |        |       | 26,785 | 
|                                         |                                                                                                                                            |                                          |        |             |        |           |        |      
|                                         |                                                                                                                                            | Total Liabilities & Stockholders Equity |        | $           | 31,477 |           |        | $     | 30,939 | 
|                                         |                                                                                                                                            |                                          |        |             |        |           |        |      

See accompanying notes to the consolidated financial statements

4



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001
(In Thousands)
(Unaudited)


|                                                    |                                                                             |   |              |        |              |   |       |        |  
|--------------------------------------------------- | --------------------------------------------------------------------------- | - | ------------ | ------ | ------------ | - | ----- | ------ | -
|                                                    |                                                                             |   | Three Months |        | Three Months
|                                                    |                                                                             |   | Ended        |        | Ended       
|                                                    |                                                                             |   | 9/30/2002    |        | 9/30/2001   
|                                                    |                                                                             |   |              |        |             
|Cash Flows From Operating Activities:               |                                                                             |   |              |        |              |   |       |       
|Net Income/(Loss)                                   |                                                                             | $ | 897          |        |              | $ | (536  | )     
|Items Not Requiring Cash:                           |                                                                             |   |              |        |              |   |       |       
|                                                    | Depreciation                                                                |   |              | 397    |              |   |       | 528    |  
|                                                    | Amortization                                                                |   |              |       |              |   |       | 25     |  
|                                                    | Loss/(Gain) on Disposal of Equipment                                        |   |              | 19     |              |   |       | (4     | )
|Changes in Certain Assets and Liabilities:          |                                                                             |   |              |        |              |   |       |       
|                                                    | Accounts Receivable                                                         |   |              | (2,198 | )            |   |       | 574    |  
|                                                    | Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts |   |              | (718   | )            |   |       | 1,210  |  
|                                                    | Inventories                                                                 |   |              | 146    |              |   |       | (63    | )
|                                                    | Prepaid Expenses and Other                                                  |   |              | 87     |              |   |       | 26     |  
|                                                    | Accounts Payable                                                            |   |              | (323   | )            |   |       | (338   | )
|                                                    | Accrued Expenses and Other Long-Term Liabilities                            |   |              | (253   | )            |   |       | 295    |  
|                                                    |                                                                             |   |              |        |              |   |       |       
|Net Cash Provided By/(Used In) Operating Activities |                                                                             |   | (1,946       | )      |              |   | 1,717 |       
|                                                    |                                                                             |   |              |        |              |   |       |       
|Cash Flows From Investing Activities:               |                                                                             |   |              |        |              |   |       |       
|                                                    | Proceeds from Sales of Assets                                               |   |              | 9      |              |   |       | 4      |  
|                                                    | Additions to Property, Plant and Equipment                                  |   |              | (201   | )            |   |       | (189   | )
|                                                    |                                                                             |   |              |        |              |   |       |       
|Net
Cash Provided by/(Used In) Investing Activities |                                                                             |   | (192         | )      |              |   | (185  | )     
|                                                    |                                                                             |   |              |        |              |   |       |       
|Cash Flows From Financing Activities:               |                                                                             |   |              |        |              |   |       |       
|                                                    | Proceeds From Issuance of Common Stock and
Options Exercised                |   |              | 49     |              |   |       |       |  
|                                                    | Note Receivable from Stockholder                                            |   |              | 168    |              |   |       |       |  
|                                                    | Borrowings Under Revolving Credit Facility                                  |   |              |       |              |   |       | 4,873  |  
|                                                    | Repayments Under Revolving Credit Facility                                  |   |              |       |              |   |       | (5,030 | )
|                                                    |                                                                             |   |              |        |              |   |       |       
|Net Cash Provided by/(Used In) Financing Activities |                                                                             |   | 217          |        |              |   | (157  | )     
|                                                    |                                                                             |   |              |        |              |   |       |       
|Net Increase/(Decrease) in Cash                     |                                                                             |   | (1,921       | )      |              |   | 1,375 |       
|Cash at Beginning of the Period                     |                                                                             |   | 6,280        |        |              |   | 39    |       
|                                                    |                                                                             |   |              |        |              |   |       |       
|Cash at End of the Period                           |                                                                             | $ | 4,359        |        |              | $ | 1,414 |       
|                                                    |                                                                             |   |              |        |              |   |       |       

Continued...

5



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 2002 AND 2001 (Continued)
(In Thousands)
(Unaudited)


|                                                        |                                          |  |              |    |              |  |   |    | 
|------------------------------------------------------- | ---------------------------------------- |  | ------------ | -- | ------------ |  | - | -- | 
|                                                        |                                          |  | Three Months |    | Three Months
|                                                        |                                          |  | Ended        |    | Ended       
|                                                        |                                          |  | 9/30/2002    |    | 9/30/2001   
|                                                        |                                          |  |              |    |             
|Supplemental Disclosure of Cash Flow Information:       |                                          |  |              |    |              |  |   |   
|Cash Paid During the Year For:                          |                                          |  |              |    |              |  |   |   
|                                                        | Interest                                 |  | $            | 21 |              |  | $ | 24 | 
|Supplemental Schedule of Non Cash Financing Activities: |                                          |  |              |    |              |  |   |   
|                                                        | Issuance of Director Equity Compensation |  | $            |   |              |  | $ | 4  | 

See accompanying notes to the consolidated financial statements

6



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)




|1. |  | The accompanying consolidated financial statements are unaudited and
have been prepared by ECC International Corp. (the Company) pursuant to
the rules and regulations of the Securities and Exchange Commission. The
June 30, 2002 the consolidated balance sheet was derived from audited
consolidated financial statements but does not include all disclosures
required by generally accepted accounting principles in the United States
of America. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting of
only normal recurring adjustments, necessary to present fairly the
consolidated financial position, results of operations, comprehensive
income and cash flows for the interim presented. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto in the Companys
Annual Report on Form 10-K for the fiscal year ended June 30, 2002.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company has no Comprehensive Income other than Net Income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|2. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  

|                             |  |                |     |           |  |   |       |  
|---------------------------- |  | -------------- | --- | --------- |  | - | ----- | -
|                             |  | (In Thousands)
|                             |  | 9/30/2002      |     | 6/30/2002
|                             |  |                |     |          
|Work in Process              |  | $              | 100 |           |  | $ | 187   |  
|Raw Materials                |  |                | 750 |           |  |   | 1,343 |  
|                             |  |                |     |           |  |   |       |  
|Total Gross Value            |  |                | 850 |           |  |   | 1,530 |  
|Reserves for Excess/Obsolete |  |                | (76 | )         |  |   | (610  | )
|                             |  |                |     |           |  |   |       |  
|Net Value                    |  | $              | 774 |           |  | $ | 920   |  
|                             |  |                |     |           |  |   |       |  



|   |  | Work in process inventory is valued using the specific identification cost
method, but not in excess of net realizable value. The Company values raw
materials at the lower of average cost or market. On a quarterly basis,
inventory items are evaluated to identify slow-moving, excess or obsolete
parts. An assessment of potential use on future programs including spare
parts orders, repairs and warranty work, is the basis for the establishment
of a reserve for excess and obsolete inventory.                                                                                                                                                                                                                                                                                              
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|3. |  | Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|   |  | On June 24, 1999, the Company entered into a revolving credit facility
(Credit Facility) with Mellon Bank, N.A., which was subsequently
purchased by LaSalle Business Credit, totaling $12.5 million and expiring
on June 24, 2003. The Credit Facility was amended in November 2001 to
reduce the line of credit to $5.0 million. Available borrowings are based
on a formula of receivables and property, as defined in the Credit
Facility. As of September 30, 2002, there was no outstanding balance
under the Credit Facility and the Company is in compliance with the
covenants. Based on the positive cash balance since July 13, 2001 and the
positive cash projections for the balance of fiscal year 2003, management
believes that operational cash requirements can be funded internally.

7



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##### 





|   |  | The Credit Facility includes a subjective acceleration clause as well as a
lockbox requirement under the control of the lender, whereby all
collections of trade receivables are used to immediately reduce any
outstanding balance under the Credit Facility.                                                                                                                                                                                                                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The Company has approximately $12.3 million of cumulative federal net
operating loss carryforwards, which expire between 2019 and 2022. In
addition, the Company had available at June 30, 2002, cumulative net
operating loss carryforwards of $18.0 million for Florida state income tax
purposes, which expire between 2019 and 2022. This amount is prior to any
potential net operating losses generated in the current year.                                                             
|  
|5. |  | Unusual Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Dr. James C. Garrett, President and Chief Executive Officer left the
Company in June 2002. Severance costs of approximately $255,000 were
recorded in June 2002, and are included in Accrued Expenses and Other.
These costs will be paid during fiscal year 2003. On July 1, 2002, Dr.
Garrett repaid in full an outstanding Promissory Note owed the Company,
which included the principal balance of $146,250 and accrued interest
through June 30, 2002 of $33,000 for a total of $179,250.
|  
|   |  | In July 2002, the Company reduced its operating cost by eliminating 15
employees or 11% of the employees. The employee termination benefits
associated with the reductions were approximately $202,000 and were
recorded in the first quarter of fiscal year 2003. Annual compensation
savings associated with these actions were approximately $1.2 million.                                                                                                                                  
|  
|   |  | The following table sets forth the details and the cumulative activity
associated with the accrual of these termination costs (in thousands):                                                                                                                                                                                                                                                                                                                                                  

|                                                 |  |   |      |  
|------------------------------------------------ |  | - | ---- | -
|Accrued Employee Termination Benefits at 6/30/02 |  | $ | 255  |  
|Employee Termination Benefits Incurred           |  |   | 202  |  
|Cash Payments                                    |  |   | (193 | )
|                                                 |  |   |      |  
|Accrued Employee Termination Benefits at 9/30/02 |  | $ | 264  |  
|                                                 |  |   |      |  

8



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##### 





|6. |  | Business Segment Information                                                                                          
|-- |  | ----------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company operates in one segment-training. This segment includes the
design and manufacture of training simulators.
|  
|   |  | Sales by Class of Customer                                                                                            

|                           |             |             |   |                    |       |           |   |       |       | 
|-------------------------- | ----------- | ----------- | - | ------------------ | ----- | --------- | - | ----- | ----- | 
|                           |             |             |   | (In Thousands)    
|                           |             |             |   | Three Months Ended
|                           |             |             |   |                   
|                           |             |             |   | 9/30/2002          |       | 9/30/2001
|                           |             |             |   |                    |       |          
|U.S. Department of Defense |             |             |   |                    |       |           |   |      
|                           | Direct      |             | $ | 2,220              |       |           | $ | 1,571 |      
|                           | Subcontract |             |   | 5,133              |       |           |   | 4,576 |      
|                           |             |             |   |                    |       |           |   |      
|                           |             | Total Sales |   | $                  | 7,353 |           |   | $     | 6,147 | 
|                           |             |             |   |                    |       |           |   |      



|   |  | Export Sales from the U.S. were not material for the three-month periods
ended September 30, 2002 and September 30, 2001. There were no Foreign
Military Sales for the three-month periods ended September 30, 2002 and
September 30, 2001. Export sales do not include Foreign Military Sales
through U.S. Government Agencies and prime contractors of $157,000 during
the three-month period ended September 30, 2002.                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Since a substantial portion of the Companys revenues are attributable to
long-term contracts with various government agencies, any factor affecting
procurement of long-term government contracts such as changes in
government spending, cancellation of weapons programs and delays in
contract awards could have a material impact on the Companys financial
condition and results of operations.                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Sales by Geographic Area                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | All of the Companys Revenues, Operating Income and Long-Lived Assets are
within the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|7. |  | Earnings/(Loss) Per Share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Basic earnings/(loss) per common share is computed by dividing net
earnings/(loss) available to common stockholders by the weighted-average
number of common shares outstanding during
the period. Diluted earnings/(loss) per share is computed by dividing net
earnings/(loss) available to common stockholders by the weighted-average
number of common shares outstanding during the period adjusted for the
number of shares that would have been outstanding if the dilutive potential
common shares resulting from the exercise of stock options had been issued.
The diluted earnings/(loss) per share does not assume the exercise of
stock options that would have an antidilutive effect on earnings/(loss) per
share.
|  
|   |  | The Companys dilutive potential common shares consist of stock options.
In calculating diluted earnings per share for the three-month period ended
September 30, 2001, approximately 49,500                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

9



---



##### 





| |  | dilutive potential common shares were not included in computing earnings
per share since they would have an anti-dilutive effect. The number of
potentially dilutive common shares for the three-month period ended
September 30, 2002 was 11,405.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The number of shares outstanding for each period presented is as follows:                                                                                                                                                                         

|         |  |                    |           |           |  |  |           | 
|-------- |  | ------------------ | --------- | --------- |  |  | --------- | 
|         |  | Three-Months Ended
|         |  |                   
|         |  | 9/30/2002          |           | 9/30/2001
|         |  |                    |           |          
|Basic    |  |                    | 7,850,908 |           |  |  | 7,830,299 | 
|Dilutive |  |                    | 7,862,313 |           |  |  | 7,830,299 | 



|8. |  | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | During fiscal year 2001, the Company announced the formation of a strategic
planning committee to evaluate various strategic alternatives for enhancing
stockholder value including a potential sale of the Company. In order to
retain critical employees, retention agreements were implemented with 28
key employees whereby an incentive of 15-20% of their salaries would be
payable in two increments: half at the date of the sale of the Company and
half six months after the close of the sale. These payments totaling
$420,000 will be recorded in the event the Company is sold on or before
March 11, 2003.
|  
|   |  | As the Company reconfigures into a smaller space, certain activities will
be outsourced. Retention agreements were implemented in order to
temporarily retain 12 key employees whose jobs will be outsourced during
fiscal year 2003. Severance payments and retention bonuses totaling
$115,000 will be recorded as the employees are terminated based on the
employees remaining with the Company through completion dates ranging from
November 2002 through March 2003.                                                                                                                                              
|  
|   |  | The Company is party to various legal proceedings arising from normal
business activity. Management believes that the ultimate resolution of
these matters will not have an adverse material effect on the Companys
financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                       

10



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##### 



ITEM 2. MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



|   |  | Overview                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended, and Section 27A of the Securities Act of 1933, as amended.
For this purpose, any statements contained herein that are not statements
of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, the words believes, anticipates,
plans, expects, and similar expressions are intended to identify
forward-looking statements. There are a number of factors that could
cause the Companys actual results to differ materially from those
indicated by such forward-looking statements. These factors include,
without limitation, those set forth below under the caption Certain
Factors That May Affect Future Operating Results.
|  
|a) |  | Material Changes in
Financial Condition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | During the three-month period ended September 30, 2002, the Companys
principal source of cash was from operations. The Companys cash balance
decreased by $1.9 million since fiscal year end 2002 due primarily to
working capital requirements to support operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Liquidity and Capital
Resources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|   |  | As of September 30, 2002, the Company is in compliance with the credit
facility covenants. See Note 3 of the Notes to Consolidated Financial
Statements for more information on the Credit Facility. Based on the
positive cash balance since July 13, 2001 and the positive cash
projections for the balance of fiscal year 2003, management believes that
operational cash requirements can be funded internally.                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | The Company considers the capacity of its Orlando, Florida facilities to
exceed its present needs and is in the process of attempting to sell the
facilities to a third party with a long-term leaseback of 90,000 square
feet. At this time, the Company is negotiating a Purchase and Sale
Agreement with a potential buyer. There can be no assurance that the
Company will be able to consummate such transaction.                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | During the remainder of fiscal year 2003, the Company anticipates spending
approximately $300,000 to refurbish the Orlando facility and purchase new
machinery and equipment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | Dr. James C. Garrett, President and Chief Executive Officer left the
Company in June 2002. Severance costs of approximately $255,000 were
recorded in June 2002, and are included in Accrued Expenses and Other.
These costs will be paid during fiscal year 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | In July 2002, the Company reduced its operating cost by eliminating 15
employees or 11% of the employees. The employee termination benefits
associated with the reductions were approximately $202,000 and were
recorded in the third quarter of fiscal year 2003. Annual compensation
savings associated with these actions were approximately $1.2 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

11



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##### 





|   |  | Managements plans to improve future profitability include: (1) a
continuation of both direct and indirect cost reduction initiatives and
improvement of operating performance, (2) an aggressive focus on
obtaining follow-on awards to existing business, and (3) the
implementation of strategies to procure new business and penetrate new
markets.                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Other than as stated above, the Company currently has no other material
commitments for capital expenditures. Management believes that with the
funds available under its projected cash flows, the Company will have
sufficient resources to meet planned operating commitments for the
foreseeable future.                                                                                                                                                                                                                                                                                                           
|  
|b) |  | Material Changes in Results of Operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Sales increased 20% or $1.2 million for the three-month period ended
September 30, 2002, compared to the same period ended September 30, 2001
due primarily to the higher volume on the Javelin FTT and EST 2000
programs.                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | Selling, general and administrative expenses decreased 12% or $211,000
during the three-month period ended September 30, 2002, compared to the
same period ended September 30, 2001, due primarily to workforce
reductions and other costs reduction actions that took place during fiscal
year 2002.                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Independent research and development expenses decreased 41% or $200,000
for the three-month period ended September 30, 2002, compared to the same
period ended September 30, 2001, due primarily to reduced activities
related to the EST 2000 program.                                                                                                                                                                                                                                                                                                                                                                
|  
|c) |  | Certain Factors That May
Affect Future Operating Results.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements
made in this Quarterly Report on Form
10-Q and presented elsewhere by management from time to time. All
forward-looking statements included in this Form 10-Q are based on
information available to the Company on
the date hereof, and the Company assumes no obligation to update such
forward-looking statements.                                                                                                                                                 
|  
|   |  | A number of uncertainties exist that could affect the Companys future
operating results including, without limitation, general economic
conditions, changes in government spending, borrowing availability under
and compliance with the Credit Facility, cancellation of weapons
programs, delays in contract awards, delays in the acceptance process of
contract deliverables, the Companys continued ability to develop and
introduce products, the introduction of new products by competitors,
pricing practices of competitors, the cost and availability of parts and
the Companys ability to control costs.
|  
|   |  | To date, a substantial portion of the Companys revenues have been
attributable to long-term contracts with various government agencies. As
a result, any factor adversely affecting procurement of long-term
government contracts could have a material adverse effect on the
Companys financial condition and results of operations.                                                                                                                                                                                                                                                                                

12



---



##### 





| |  | Because of these and other factors, past financial performance should not
be considered an indication of future performance. The Companys future
quarterly operating results may vary significantly. Investors should not
use historical trends to anticipate future results and should be aware
that the trading price of the Companys Common Stock may be subject to
wide fluctuations in response to quarterly variations in operating
results and other factors, including those discussed above.                                                                                                                                                                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Critical Accounting
Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The Company considers that certain accounting policies are critical due to the
estimation process involved in each of them. The assumptions and judgement
utilized in developing these estimates are based on the information available
at the time including an assessment of the risks and uncertainties. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the periods presented. The significant accounting policies,
which the Company believes are the most critical to aid in fully understanding
and evaluating our reported financial results, include the following:                                                                                                             
|
| |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Contract sales and anticipated profits are recognized using the percentage
of completion method measured by the ratio of costs incurred to date to
estimated total costs. The Company reevaluates the estimated costs to
complete on the entire contract on a quarterly basis. Any revisions in
estimated costs or contract value during the progress of the work may
affect the estimated gross margin percentage for the contract. Estimated
costs may be adjusted favorably or unfavorably based on projected changes
in areas such as labor efficiencies, material price negotiations, supplier
delivery schedules, design and development progress and overhead rate
projections. Changes in gross margin percentages have the effect of
adjusting the current period earnings applicable to performance in prior
periods.
|
| |  | Anticipated losses on contracts in progress are recorded in the period in
which the losses are identified. Claims would be included as a component
of contract value for purposes of revenue recognition at such time as the
amount is reasonably determinable and probable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company values raw materials at the lower of average cost or market.
On a quarterly basis, inventory items are evaluated to identify
slow-moving, excess or obsolete parts. An assessment of potential use on
future programs including spare parts orders, repairs and warranty work,
is the basis for the establishment of a reserve for excess and obsolete
inventory. Potential usage assessments may be impacted favorably or
unfavorably by changes in the Companys projected contracts, parts
obsolescence and level of spares and repairs.                                                                                                                                                                                                                                                                        
|
| |  | Deferred Tax Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Company has provided a full valuation reserve against its deferred tax
assets. In the future, if sufficient evidence of the Companys ability to
generate future taxable income becomes apparent, the Company may reduce
its valuation allowances resulting in income tax benefits in the Companys
consolidated statement of operations. Management evaluates the
realizability of the deferred tax assets quarterly and assesses the
valuation allowance quarterly.                                                                                                                                                                                                                                                                                                                                                      

13



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##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to interest rate risk on its borrowings under the
Credit Facility. The Credit Facility has a floating interest rate based on
prevailing market rates. Accordingly, the carrying value of the debt is
generally not affected by fluctuations in interest rates. However, such
changes in interest rates could affect future interest expense and hence
earnings and cash flows.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation, as of a date within 90 days of the filing of this
Form 10-Q, the Companys Chief Executive Officer and Chief Financial Officer
have concluded the Companys disclosure controls and procedures (as defined in
Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934) are
effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

14



---



##### 



PART II. OTHER INFORMATION

ECC INTERNATIONAL CORP.


ITEM 6. Exhibits and Reports on Form 8-K

a.     Exhibits



| |     
| | ----
| | None

b.     Reports on Form 8-K



| |     
| | ----
| | None

15



---



##### 



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.

|                        |  |                                                
|----------------------- |  | -----------------------------------------------
|                        |  | ECC INTERNATIONAL CORP.                        
|                       
|Date: November 13, 2002 |  | /s/ Melissa Van Valkenburgh                    
|                        |  |                                                
|                        |  | Melissa Van Valkenburgh
Chief Financial Officer

16



---



##### 



ECC INTERNATIONAL CORP.

a Delaware corporation

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Section 302 Certification

I, James R. Henderson certify that:

|   |  |                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | I have reviewed this quarterly report on Form 10-Q of ECC
International Corp.;                                                                                                                                                                                                                                                
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     

|   |  |                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
|  
|b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|  
|c) |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        

|   |  |                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):

|   |  |                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
|  
|b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

|   |  |                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. |  | The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

|                        |  |                                           
|----------------------- |  | ------------------------------------------
|Date: November 13, 2002 |  | /s/ James R. Henderson                    
|                        |  |                                           
|                        |  | James R. Henderson
Chief Executive Officer

17



---



##### 



ECC INTERNATIONAL CORP.

a Delaware corporation

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Section 302 Certification

I, Melissa Van Valkenburgh, certify that:

|   |  |                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | I have reviewed this quarterly report on Form 10-Q of ECC
International Corp.;                                                                                                                                                                                                                                                
|  
|2. |  | Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
|  
|3. |  | Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;                   
|  
|4. |  | The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for
the registrant and we have:                                                                                                     

|   |  |                                                                                                                                                                                                                                                                                                
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this quarterly report is being prepared;
|  
|b) |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this quarterly report (the Evaluation
Date); and                                                                                                  
|  
|c) |  | presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        

|   |  |                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. |  | The registrants other certifying officers and I have
disclosed, based on our most recent evaluation, to the registrants
auditors and the audit committee of registrants board of directors
(or persons performing the equivalent function):

|   |  |                                                                                                                                                                                                                                                                                               
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|a) |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data
and have identified for the registrants auditors any material
weaknesses in internal controls; and
|  
|b) |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        

|   |  |                                                                                                                                                                                                                                                                                                                                                                                          
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. |  | The registrants other certifying officers and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our
most recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

|                        |  |                                                
|----------------------- |  | -----------------------------------------------
|Date: November 13, 2002 |  | /s/ Melissa Van Valkenbuogh                    
|                        |  |                                                
|                        |  | Melissa Van Valkenburgh
Chief Financial Officer

18



---



##### 



CERTIFICATION OF CHIEF EXECUTIVE OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350),
the undersigned, James R. Henderson, President and Chief Executive Officer of
ECC International Corp., a Delaware corporation (the Company), does hereby
certify, to his knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 of
the Company (the Report) fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, and the information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.

| |  |                                                                           
| |  | --------------------------------------------------------------------------
| |  | /s/ James R. Henderson                                                    
| |  |                                                                           
| |  | James R. Henderson
President and Chief Executive Officer
November 13, 2002





---



##### 



CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350)

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350),
the undersigned, Melissa Van Valkenburgh, Chief Financial Officer of ECC
International Corp., a Delaware corporation (the Company), does hereby
certify, to his knowledge, that:

The Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 of
the Company (the Report) fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, and the information
contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.

| |  |                                                                  
| |  | -----------------------------------------------------------------
| |  | /s/ Melissa Van Valkenburgh                                      
| |  |                                                                  
| |  | Melissa Van Valkenburgh
Chief Financial Officer
November 13, 2002