UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended August 29, 2008
 Commission File Number 1-10655
 ENVIRONMENTAL
TECTONICS CORPORATION
 Pennsylvania
    
    23-1714256(State or other jurisdiction of incorporation or
organization)
    
    (I.R.S. Employer Identification No.)
 
    þ o
  Large accelerated filer oAccelerated filer oNon-accelerated filer o(Do not check if a smaller reporting company)Smaller reporting company þ  o þ




---



##### 



PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the 13 and 26 week periods ended August 29, 2008 and
August 24, 2007
    
    3Condensed Consolidated Balance Sheets as of August 29, 2008 and February 29, 2008
    
    
    4Condensed Consolidated Statements of Cash Flows for the 26 week periods ended August 29, 2008 and
August 24, 2007
    
    
    5Notes to the Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    17Item 4. Controls and Procedures
    
    
    25PART II  OTHER INFORMATION
    
    
    26Item 1. Legal Proceedings
    
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults Upon Senior Securities
    
    
    27Item 4. Submission of Matters to Vote of Security Holders
    
    
    27Item 5. Other Information
    
    
    27Item 6. Exhibits
    
    
    27Signatures
    
    
    28
  2




---



##### 



PART I  FINANCIAL INFORMATION
 Item 1. Financial Statements (unaudited)
 Environmental Tectonics Corporation
Condensed Consolidated Statements of Operations
(unaudited)
(in thousands, except share and per share information)
 Thirteen Weeks
    
    
    Twenty six WeeksEnded
    
    
    EndedAugust 29,
    
    
    August 24,
    
    
    August 29,
    
    
    August 24,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    $
    8,724
    
    
    $
    4,247
    
    
    $
    18,699
    
    
    $
    8,594Cost of goods sold
    
    
    6,682
    
    
    
    3,659
    
    
    
    14,162
    
    
    
    7,067Gross profit
    
    
    2,042
    
    
    
    588
    
    
    
    4,537
    
    
    
    1,527Operating expenses:Selling and administrative
    
    
    2,755
    
    
    
    2,680
    
    
    
    6,068
    
    
    
    5,523Claim settlement costs
    
    
    
    
    
    
    250
    
    
    
    
    
    
    
    3,639Research and development
    
    
    404
    
    
    
    237
    
    
    
    699
    
    
    
    2913,159
    
    
    
    3,167
    
    
    
    6,767
    
    
    
    9,453Operating loss
    
    
    (1,117
    )
    
    
    (2,579
    )
    
    
    (2,230
    )
    
    
    (7,926
    )Other expenses:Interest expense
    
    
    434
    
    
    
    386
    
    
    
    870
    
    
    
    740Other, net
    
    
    50
    
    
    
    11
    
    
    
    (11
    )
    
    
    41484
    
    
    
    397
    
    
    
    859
    
    
    
    781Loss before income taxes
    
    
    (1,601
    )
    
    
    (2,976
    )
    
    
    (3,089
    )
    
    
    (8,707
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss before minority interest
    
    
    (1,601
    )
    
    
    (2,976
    )
    
    
    (3,089
    )
    
    
    (8,707
    )Loss attributable to minority interest
    
    
    (8
    )
    
    
    (6
    )
    
    
    (7
    )
    
    
    (12
    )Net loss
    
    
    (1,593
    )
    
    
    (2,970
    )
    
    
    (3,082
    )
    
    
    (8,695
    )Preferred stock dividend
    
    
    (233
    )
    
    
    (90
    )
    
    
    (465
    )
    
    
    (180
    )Loss applicable to common shareholders
    
    $
    (1,826
    )
    
    $
    (3,060
    )
    
    $
    (3,547
    )
    
    $
    (8,875
    )Per share information:Basic and diluted loss per share
applicable to common shareholders
    
    $
    (0.20
    )
    
    $
    (0.34
    )
    
    $
    (0.39
    )
    
    $
    (0.98
    )Basic and diluted weighted average
number of common shares
    
    
    9,035,000
    
    
    
    9,030,000
    
    
    
    9,035,000
    
    
    
    9,029,000
  3




---



##### 



Environmental Tectonics Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share information)
 August 29, 2008(unaudited)
    
    
    February 29, 2008ASSETSCash and cash equivalents
    
    $
    785
    
    
    $
    1,871Restricted cash
    
    
    2,458
    
    
    
    4,526Accounts receivable, net of allowance for bad debts
of $733 and $746
    
    
    4,196
    
    
    
    3,231Costs and estimated earnings in excess of billings
on uncompleted long-term contracts
    
    
    1,430
    
    
    
    3,422Inventories, net
    
    
    4,313
    
    
    
    6,773Prepaid expenses and other current assets
    
    
    707
    
    
    
    833Total current assets
    
    
    13,889
    
    
    
    20,656Lease receivable, net of current portion
    
    
    440
    
    
    
    Property, plant and equipment, at cost, net
    
    
    15,600
    
    
    
    15,208Construction in progress
    
    
    265
    
    
    
    147Software development costs, net of accumulated
amortization of $12,696 and $12,161
    
    
    1,176
    
    
    
    1,614Total assets
    
    $
    31,370
    
    
    $
    37,625LIABILITIESCurrent portion of long-term debt
    
    $
    9
    
    
    $
    9Accounts payable  trade
    
    
    2,404
    
    
    
    3,060Billings in excess of costs and estimated earnings
on uncompleted long-term contracts
    
    
    5,258
    
    
    
    6,491Customer deposits
    
    
    2,649
    
    
    
    2,989Accrued claim settlement costs
    
    
    
    
    
    
    2,275Accrued interest and dividends
    
    
    3,260
    
    
    
    2,287Other accrued liabilities
    
    
    2,169
    
    
    
    1,803Total current liabilities
    
    
    15,749
    
    
    
    18,914Long-term obligations, less current portion:Credit facility payable to bank
    
    
    8,710
    
    
    
    8,810Subordinated convertible debt
    
    
    9,515
    
    
    
    9,366Other long-term debt
    
    
    11
    
    
    
    1618,236
    
    
    
    18,192Unearned interest
    
    
    143
    
    
    
    Total liabilities
    
    
    34,128
    
    
    
    37,106Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    45
    
    
    
    50Cumulative convertible participating preferred
stock, Series B, $.05 par value, 15,000 shares
authorized; 6,000 shares issued and outstanding at
August 29, 2008 and February 29, 2008
    
    
    6,000
    
    
    
    6,000Cumulative convertible participating preferred
stock, Series C, $.05 par value, 3,300 shares
authorized, issued and outstanding at August 29,
2008 and February 29, 2008
    
    
    3,300
    
    
    
    3,300STOCKHOLDERS DEFICIENCYCommon stock, $.05 par value, 20,000,000 shares
authorized; 9,035,355 shares issued and outstanding
at August 29, 2008 and February 29, 2008
    
    
    451
    
    
    
    451Additional paid-in capital
    
    
    15,719
    
    
    
    16,139Accumulated other comprehensive loss
    
    
    5
    
    
    
    (121
    )Accumulated deficit
    
    
    (28,278
    )
    
    
    (25,300
    )Total stockholders deficiency
    
    
    (12,103
    )
    
    
    (8,831
    )Total liabilities and stockholders deficiency
    
    $
    31,370
    
    
    $
    37,625
  4




---



##### 



Environmental Tectonics Corporation
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
 Twenty six WeeksEndedAugust 29,
    
    
    August 24,2008
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (3,082
    )
    
    $
    (8,695
    )Adjustments to reconcile net loss to net cash used in operating
activities:Depreciation and amortization
    
    
    1,113
    
    
    
    906Accretion of debt discount
    
    
    149
    
    
    
    257Increase in allowances for accounts receivable and inventories, net
    
    
    95
    
    
    
    433Loss attributable to minority interest
    
    
    (7
    )
    
    
    (12
    )Stock compensation expense
    
    
    43
    
    
    
    57Changes in operating assets and liabilities:Accounts receivable
    
    
    (952
    )
    
    
    (2,049
    )Costs and estimated earnings in excess of billings on
uncompleted long-term contracts
    
    
    1,992
    
    
    
    1,350Inventories
    
    
    2,352
    
    
    
    (1,063
    )Prepaid expenses and other assets
    
    
    (302
    )
    
    
    (194
    )Accounts payable
    
    
    (656
    )
    
    
    (44
    )Billings in excess of costs and estimated earnings on
uncompleted long-term contracts
    
    
    (1,233
    )
    
    
    (149
    )Customer deposits
    
    
    (340
    )
    
    
    1,584Accrued interest
    
    
    510
    
    
    
    689Other accrued liabilities
    
    
    609
    
    
    
    (212
    )Net cash provided by (used in) operating activities
    
    
    291
    
    
    
    (7,142
    )Cash flows from investing activities:Acquisition of equipment
    
    
    (970
    )
    
    
    (67
    )Capitalized software development costs
    
    
    (97
    )
    
    
    (435
    )Payments for construction in progress
    
    
    (124
    )
    
    
    (2,716
    )Net cash used in investing activities
    
    
    (1,191
    )
    
    
    (3,218
    )Cash flows from financing activities:Borrowings under line of credit
    
    
    1,400
    
    
    
    5,000Repayments under line of credit
    
    
    (1,500
    )
    
    
    Proceeds from notes payable, Lenfest
    
    
    
    
    
    
    4,000Repayments of notes payable, Lenfest
    
    
    
    
    
    
    (4,000
    )Payments of other debt obligations
    
    
    (5
    )
    
    
    Proceeds from issuance of preferred stock
    
    
    
    
    
    
    3,300Payment of claim settlement costs
    
    
    (2,275
    )
    
    
    3,550Decrease (increase) in restricted cash
    
    
    2,068
    
    
    
    (3,302
    )Net cash (used in) provided by financing activities
    
    
    (312
    )
    
    
    8,548Effect of exchange rate changes on cash
    
    
    126
    
    
    
    24Net decrease in cash
    
    
    (1,086
    )
    
    
    (1,788
    )Cash at beginning of period
    
    
    1,871
    
    
    
    2,215Cash at end of period
    
    $
    785
    
    
    $
    427Supplemental schedule of cash flow information:Interest paid
    
    $
    266
    
    
    $
    113Income taxes paid
    
    
    
    
    
    
    Supplemental information on non-cash operating and investing
activities:Accrued dividends on Preferred Stock
    
    $
    463
    
    
    $
    148
  5




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements
 1. Subsequent Events
 Stock Exchange Listing
    Lenfest Acquisition Proposal
  2. Liquidity Matters
   6




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
   ,
 3. Summary of Significant Accounting Policies
 Basis of Presentation
      Significant Accounting Policies
  Fair Value Measurements
 Fair Value Measurements Effective Date of FASB Statement No. 157
 7




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 Recently Issued Accounting Pronouncements
 Business Combinations
 The Fair Value Option for Financial Assets and Financial Liabilities  Including an
amendment of FASB Statement No. 115
 Noncontrolling Interests in Consolidated
Financial Statementsan amendment of Accounting Research Bulletin No. 51
 Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity with Generally Accepted
Accounting Principles.
 Accounting for Convertible Debt Instruments That
May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
  8




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 4. Inventories
  August 29,
    
    
    February 29,2008
    
    
    2008(unaudited)(in thousands)Raw materials
    
    $
    91
    
    
    $
    90Work in process
    
    
    3,205
    
    
    
    5,916Finished goods
    
    
    1,017
    
    
    
    767Total
    
    $
    4,313
    
    
    $
    6,773
  5. Accounts Receivable:
  August 29,2008
    
    
    
    February 29,(unaudited)
    
    
    
    2008(in thousands)U.S. government receivables
    
    $
    184
    
    
    $
    315U.S. commercial receivables
    
    
    3,388
    
    
    
    2,573International receivables
    
    
    1,357
    
    
    
    1,0894,929
    
    
    
    3,977Less: allowance for doubtful accounts
    
    
    (733
    )
    
    
    (746
    )$
    4,196
    
    
    $
    3,231
 6. Long-term Obligations, Credit Arrangements and Preferred Stock:
      9




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
       (in thousands)August 29,2008
    
    February 29,(unaudited)
    

    2008Credit facility payable to bank
    
    $
    8,710
    
    
    $
    8,810Subordinated convertible debt, net
of unamortized discount of $485 and
$634
    
    
    9,515
    
    
    
    9,366Other debt obligations
    
    
    20
    
    
    
    2518,245
    
    
    
    18,201Less current portion
    
    
    9
    
    
    
    9$
    18,236
    
    
    $
    18,192
 10




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
           11




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
   August 29,2008
    
    February 29,(unaudited)
    
    2008Accrued dividends on Series B Preferred Stock
    
    $
    1,048
    
    
    $
    749Accrued dividends on Series C Preferred Stock
    
    
    335
    
    
    
    171Total accrued dividends
    
    
    1,383
    
    
    
    920Accrued interest on Subordinated Debt
    
    
    1,842
    
    
    
    1,367Other accrued interest
    
    
    35
    
    
    
    Total accrued interest
    
    
    1,877
    
    
    
    1,367Total accrued interest and dividends
    
    $
    3,260
    
    
    $
    2,287
 7. Income Taxes
 Accounting for Income Taxes
  12




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 8. Segment Information (unaudited):
  (in thousands)TSG
    
    
    CSG
    
    
    TotalThirteen weeks ended and as of August
29, 2008:Net sales
    
    $
    4,199
    
    
    $
    4,525
    
    
    $
    8,724Interest expense
    
    
    396
    
    
    
    36
    
    
    
    434Depreciation and amortization
    
    
    160
    
    
    
    397
    
    
    
    557Operating loss
    
    
    (666
    )
    
    
    (162
    )
    
    
    (828
    )Income tax
    
    
    
    
    
    
    
    
    
    
    Goodwill and intangibles
    
    
    
    
    
    
    
    
    
    
    Identifiable assets
    
    
    4,881
    
    
    
    6,234
    
    
    
    11,115Expenditures for segment assets
    
    
    655
    
    
    
    
    
    
    
    655Thirteen weeks ended and as of August
24, 2007:Net sales
    
    $
    1,862
    
    
    $
    2,385
    
    
    $
    4,247Interest expense
    
    
    313
    
    
    
    73
    
    
    
    386Depreciation and amortization
    
    
    120
    
    
    
    334
    
    
    
    454Operating loss
    
    
    (830
    )
    
    
    (1,346
    )
    
    
    (2,176
    )Income tax
    
    
    
    
    
    
    
    
    
    
    Goodwill and intangibles
    
    
    455
    
    
    
    
    
    
    
    455Identifiable assets
    
    
    7,551
    
    
    
    5,016
    
    
    
    12,567Expenditures for segment assets
    
    
    242
    
    
    
    170
    
    
    
    412
 2008
    
    
    2007Reconciliation to consolidated amountsSegment assets
    
    $
    11,115
    
    
    $
    12,567Corporate assets
    
    
    20,255
    
    
    
    20,110Total assets
    
    $
    31,370
    
    
    $
    32,677Segment operating loss
    
    $
    (828
    )
    
    $
    (2,176
    )Interest expense
    
    
    434
    
    
    
    386Income tax expense
    
    
    
    
    
    
    Total loss for segments
    
    
    (1,262
    )
    
    
    (2,562
    )Corporate home office expenses
    
    
    289
    
    
    
    403Other expenses, net
    
    
    50
    
    
    
    11Minority interest
    
    
    (8
    )
    
    
    (6
    )Net loss
    
    $
    (1,593
    )
    
    $
    (2,970
    )
 13




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 (in thousands)TSG
    
    CSG
    
    TotalTwenty-six weeks ended and as of
August 29, 2008:Net sales
    
    $
    8,499
    
    
    $
    10,200
    
    
    $
    18,699Interest expense
    
    
    644
    
    
    
    226
    
    
    
    870Depreciation and amortization
    
    
    305
    
    
    
    808
    
    
    
    1,113Operating loss
    
    
    (1,608
    )
    
    
    134
    
    
    
    (1,474
    )Income tax
    
    
    
    
    
    
    
    
    
    
    Goodwill and intangibles
    
    
    
    
    
    
    
    
    
    
    Identifiable assets
    
    
    4,881
    
    
    
    6,234
    
    
    
    11,115Expenditures for segment assets
    
    
    1,132
    
    
    
    59
    
    
    
    1,191Twenty-six weeks ended and as of
August 24, 2007:Net sales
    
    $
    3,131
    
    
    $
    5,463
    
    
    $
    8,594Interest expense
    
    
    548
    
    
    
    192
    
    
    
    740Depreciation and amortization
    
    
    257
    
    
    
    649
    
    
    
    906Operating loss
    
    
    (1,793
    )
    
    
    (5,492
    )
    
    
    (7,285
    )Income tax
    
    
    
    
    
    
    
    
    
    
    Goodwill and intangibles
    
    
    455
    
    
    
    
    
    
    
    455Identifiable assets
    
    
    7,551
    
    
    
    5,016
    
    
    
    12,567Expenditures for segment assets
    
    
    377
    
    
    
    125
    
    
    
    502
 2008
    
    
    2007Reconciliation to consolidated amountsSegment assets
    
    $
    11,115
    
    
    $
    12,567Corporate assets
    
    
    20,255
    
    
    
    20,110Total assets
    
    $
    31,370
    
    
    $
    32,677Segment operating loss
    
    $
    (1,474
    )
    
    $
    (7,285
    )Interest expense
    
    
    870
    
    
    
    740Income tax expense
    
    
    
    
    
    
    Total loss for segments
    
    
    (2,344
    )
    
    
    (8,025
    )Corporate home office expenses
    
    
    756
    
    
    
    641Other expenses, net
    
    
    (11
    )
    
    
    41Minority interest
    
    
    (7
    )
    
    
    (12
    )Net loss
    
    $
    (3,082
    )
    
    $
    (8,695
    )
     14




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
   9. Legal Proceedings
 Walt Disney World Co.
   Mends International, Ltd.
  Settlement with U.S. Navy
    15




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
       16




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
         
    
    high bid and proposal activity which utilized engineering resources which
otherwise would have been applied to existing contract requirements, resulting in
delayed revenue recognition on long-term contracts;
 17




---



##### 




    
    the continuing cost of development and marketing efforts for our Authentic
Tactical Fighting Systems (ATFS);
    
    continued spending to modify our main facility in Southampton, Pa., and to build
equipment for the National Aerospace Training and Research (NASTAR) Center;
    
    
    continuing public company legal and other costs;
  
    
    relatively high cost of capital (preferred stock) and debt-related amortization
and interest expense.
  
    
    cash limitations;
    18




---



##### 



19




---



##### 



Results of Operations
 Thirteen weeks ended August 29, 2008 compared to thirteen weeks ended August 24, 2007
  Summary Table of ResultsThirteen weeks endedAugust 29,
    
    August 24,
    
    Variance2008
    
    2007
    
    $
    
    %(amounts in thousands)
    
    Favorable (Unfavorable)Sales:Domestic
    
    $
    4,322
    
    
    $
    2,400
    
    
    $
    1,922
    
    
    
    80.1
    %US Government
    
    
    386
    
    
    
    79
    
    
    
    307
    
    
    
    388.6
    %International
    
    
    4,016
    
    
    
    1,768
    
    
    
    2,248
    
    
    
    127.1
    %Total Sales
    
    
    8,724
    
    
    
    4,247
    
    
    
    4,477
    
    
    
    105.4
    %Gross Profit
    
    
    2,042
    
    
    
    588
    
    
    
    1,454
    
    
    
    247.3
    %Selling, general and administrative
    
    
    2,755
    
    
    
    2,680
    
    
    
    (75
    )
    
    
    (2.8
    )%Claim settlement costs
    
    
    
    
    
    
    250
    
    
    
    250
    
    
    
    100.0
    %Research and development
    
    
    404
    
    
    
    237
    
    
    
    (167
    )
    
    
    (70.5
    )%Operating loss
    
    
    (1,117
    )
    
    
    (2,579
    )
    
    
    1,462
    
    
    
    56.7
    %Interest expense, net
    
    
    434
    
    
    
    386
    
    
    
    (48
    )
    
    
    (12.4
    )%Other expense, net
    
    
    50
    
    
    
    11
    
    
    
    (39
    )
    
    
    (354.5
    )%Minority interest
    
    
    (8
    )
    
    
    (6
    )
    
    
    2
    
    
    
    33.3
    %Net loss
    
    
    ($1,593
    )
    
    
    ($2,970
    )
    
    $
    1,377
    
    
    
    46.4
    %Net loss per share applicable to common
stockholders
    
    
    ($0.20
    )
    
    
    ($0.34
    )
    
    $
    0.14
    
    
    
    41.2
    %
 Net Loss
  Sales
   20




---



##### 



Domestic Sales
  International Sales
 .
 Gross Profit
  Selling and Administrative Expenses
  Claim Settlement Costs
  Research and Development Expenses
  Interest Expense
  21




---



##### 



Other Income/Expense, Net
  Twenty six weeks ended August 29, 2008 compared to twenty six weeks ended August 24, 2007
 Summary Table of ResultsTwenty six weeks endedAugust 29,
    
    August 24,
    
    Variance2008
    
    2007
    
    $
    
    %(amounts in thousands)
    
    Favorable (Unfavorable)Sales:Domestic
    
    $
    9,644
    
    
    $
    4,841
    
    
    $
    4,803
    
    
    
    99.2
    %US Government
    
    
    1,377
    
    
    
    648
    
    
    
    729
    
    
    
    112.5
    %International
    
    
    7,678
    
    
    
    3,105
    
    
    
    4,573
    
    
    
    147.3
    %Total Sales
    
    
    18,699
    
    
    
    8,594
    
    
    
    10,105
    
    
    
    117.6
    %Gross Profit
    
    
    4,537
    
    
    
    1,527
    
    
    
    3,010
    
    
    
    197.1
    %Selling, general and
administrative
    
    
    6,068
    
    
    
    5,523
    
    
    
    (545
    )
    
    
    (9.9
    )%Claim settlement costs
    
    
    
    
    
    
    3,639
    
    
    
    3,639
    
    
    
    100.0
    %Research and development
    
    
    699
    
    
    
    291
    
    
    
    (408
    )
    
    
    (140.2
    )%Operating profit (loss)
    
    
    (2,230
    )
    
    
    (7,926
    )
    
    
    5,696
    
    
    
    71.9
    %Interest expense, net
    
    
    870
    
    
    
    740
    
    
    
    (130
    )
    
    
    (17.6
    )%Other expense, net
    
    
    (11
    )
    
    
    41
    
    
    
    52
    
    
    
    126.8
    %Minority interest
    
    
    (7
    )
    
    
    (12
    )
    
    
    (5
    )
    
    
    41.7
    %Net loss
    
    
    ($3,082
    )
    
    
    ($8,695
    )
    
    $
    5,613
    
    
    
    64.6
    %Net loss per share applicable
to common stockholders
    
    
    ($0.39
    )
    
    
    ($0.98
    )
    
    $
    0.59
    
    
    
    60.2
    %
 Net Loss
  Sales
   22




---



##### 



Domestic Sales
 $ $
 International Sales
  Gross Profit
  Selling and Administrative Expenses
  Claim Settlement Costs
  Research and Development Expenses
  Interest Expense
  Other Income/Expense, Net
  23




---



##### 



Liquidity and Capital Resources
          Backlog
 ,
  24




---



##### 



Item 4. Controls and Procedures
    Internal Control  Integrated
Framework Internal Control  Integrated Framework,
   
    
    The Company did not file its Quarterly Reports on Form 10-Q for the quarters
ended May 25, 2007, August 24, 2007 and November 23, 2007 on a timely basis.
    
    Management had a lack of expertise in accounting for complex transactions.
    
    The Company lacked an independent review of the accounting records.
    
    Management exhibited a lack of training in compliance with government contracts.
          25




---



##### 



PART II  OTHER INFORMATION
 Item 1. Legal Proceedings
 Walt Disney World Co.
   Mends International, Ltd.
    26




---



##### 



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Item 3. Defaults Upon Senior Securities
  Item 4. Submission of Matters to Vote of Security Holders
  Item 5. Other Information
  Item 6. Exhibits
 Number
    
    Item3.1
    
    Registrants Articles of Incorporation, as amended, were filed as
Exhibit 3.1 to Registrants Form 10-K for the year ended February
28, 1997 and are incorporated herein by reference.3.2
    
    Registrants amended and restated By-Laws were filed as Exhibit 3.2
to Registrants Form 8-K dated May 25, 2005, and are incorporated
herein by reference.31.1
    
    Certification dated October 13, 2008 pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 made by William F. Mitchell, Chief Executive Officer.31.2
    
    Certification dated October 13, 2008 pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002 made by Duane D. Deaner, Chief Financial Officer.32
    
    Certification dated October 13, 2008 pursuant to 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 made by William F. Mitchell, Chief Executive Officer, and
Duane D. Deaner, Chief Financial Officer.
 27




---



##### 



Signatures
  ENVIRONMENTAL TECTONICS CORPORATION
 Date:   October 13, 2008
    By:
    /s/ William F. MitchellWilliam F. MitchellPresident and Chief
Executive Officer
(Principal Executive Officer)Date:   October 13, 2008
    By:
    /s/ Duane DeanerDuane Deaner,Chief Financial Officer
(Principal Financial and Accounting Officer)