##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended May 28, 2010
 Commission File Number 1-10655
 ENVIRONMENTAL TECTONICS CORPORATION
 Pennsylvania
    
    23-1714256(State or other jurisdiction of incorporation or
    
    (I.R.S. Employer Identification No.)organization)
   (Address of principal executive offices, Zip Code)
   þ o
  þ o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-accelerated Filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



PART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements (unaudited)
    
    
    3Condensed Consolidated Income Statements (unaudited) for the thirteen week periods ended May
28, 2010 and May 29, 2009
    
    
    3Condensed Consolidated Balance Sheets (unaudited) as of May 28, 2010 and February 26, 2010
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited) for the thirteen week periods ended
May 28, 2010 and May 29, 2009
    
    
    5Notes to the Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    15Item 4T. Controls and Procedures
    
    
    22PART II  OTHER INFORMATION
    
    
    22Item 1. Legal Proceedings
    
    
    22Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3. Defaults Upon Senior Securities
    
    
    23Item 4. Other Information
    
    
    23Item 5. Exhibits
    
    
    23Signatures
    
    
    24EX-10.2EX-31.1EX-31.2EX-32
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (unaudited)
 Environmental Tectonics Corporation
 
 Condensed Consolidated Income Statements
 (unaudited)
(in thousands, except share and per share information)
 Thirteen weekperiods endedMay 28,
    
    
    May 29,2010
    
    
    2009Net sales
    
    $
    12,121
    
    
    $
    9,581Cost of goods sold
    
    
    6,991
    
    
    
    5,154Gross profit
    
    
    5,130
    
    
    
    4,427Operating expenses:Selling and marketing
    
    
    1,102
    
    
    
    1,254General and administrative
    
    
    1,463
    
    
    
    1,602Research and development
    
    
    324
    
    
    
    2282,889
    
    
    
    3,084Operating income
    
    
    2,241
    
    
    
    1,343Other expenses:Interest expense
    
    
    228
    
    
    
    516Other, net
    
    
    72
    
    
    
    55300
    
    
    
    571Income before income taxes
    
    
    1,941
    
    
    
    772Provision for income taxes
    
    
    
    
    
    
    Income before noncontrolling interest
    
    
    1,941
    
    
    
    772Income attributable to noncontrolling interest
    
    
    5
    
    
    
    2Net income
    
    
    1,936
    
    
    
    770Preferred stock dividend
    
    
    (577
    )
    
    
    (235
    )Income applicable to common shareholders
    
    $
    1,359
    
    
    $
    535Per share information:Earnings per common share:Basic
    
    $
    0.15
    
    
    $
    0.06Diluted
    
    $
    0.09
    
    
    $
    0.06Weighted average common shares:Basic
    
    
    9,085,000
    
    
    
    9,054,000Diluted
    
    
    20,967,000
    
    
    
    9,054,000
  3




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Environmental Tectonics Corporation

Condensed Consolidated Balance Sheets
 (in thousands, except share information)
 May 28,2010
    
    
    February 26,(unaudited)
    
    
    2010ASSETSCash and cash equivalents
    
    $
    874
    
    
    $
    2,408Restricted cash
    
    
    5,476
    
    
    
    2,751Accounts receivable, net
    
    
    4,087
    
    
    
    17,356Costs and estimated earnings in excess of billings on uncompleted long-term contracts
    
    
    3,666
    
    
    
    3,576Inventories, net
    
    
    4,788
    
    
    
    5,114Deferred tax assets, current
    
    
    5,391
    
    
    
    4,983Prepaid expenses and other current assets
    
    
    1,602
    
    
    
    545Total current assets
    
    
    25,884
    
    
    
    36,733Property, plant and equipment, at cost, net
    
    
    13,606
    
    
    
    13,643Construction in progress
    
    
    440
    
    
    
    316Software development costs, net
    
    
    837
    
    
    
    691Other assets
    
    
    291
    
    
    
    346Total assets
    
    $
    41,058
    
    
    $
    51,729LIABILITIESCurrent portion of long-term debt
    
    $
    213
    
    
    $
    285Accounts payable  trade
    
    
    1,710
    
    
    
    1,783Billings in excess of costs and estimated earnings on uncompleted long-term contracts
    
    
    8,105
    
    
    
    13,944Customer deposits
    
    
    1,683
    
    
    
    1,799Accrued interest and dividends
    
    
    833
    
    
    
    782Other accrued liabilities
    
    
    2,400
    
    
    
    2,814Total current liabilities
    
    
    14,944
    
    
    
    21,407Long-term obligations, less current portion:Credit facility payable to bank
    
    
    4,508
    
    
    
    9,808Other long-term debt
    
    
    
    
    
    
    124,508
    
    
    
    9,820Deferred tax liabilities
    
    
    3,298
    
    
    
    3,066Unearned interest
    
    
    19
    
    
    
    22Total liabilities
    
    
    22,769
    
    
    
    34,315Commitments and contingencies
    
    
    
    
    
    
    STOCKHOLDERS EQUITYCumulative convertible participating preferred stock, Series D, $.05 par value,
11,000 shares authorized; 155 shares outstanding
    
    
    155
    
    
    
    155Cumulative convertible participating preferred stock, Series E, $.05 par value,
25,000 shares authorized; 22,741 and 23,741 shares outstanding at May 28, 2010 and
February 26, 2010, respectively
    
    
    22,741
    
    
    
    23,741Common stock, $.05 par value, 20,000,000 shares authorized; 9,086,999 and 9,083,573
shares issued and outstanding at May 28, 2010 and February 26, 2010, respectively
    
    
    454
    
    
    
    454Additional paid-in capital
    
    
    13,508
    
    
    
    14,050Accumulated other comprehensive income (loss)
    
    
    45
    
    
    
    (431
    )Accumulated deficit
    
    
    (18,657
    )
    
    
    (20,593
    )Total stockholders equity before noncontrolling interest
    
    
    18,246
    
    
    
    17,376Noncontrolling interest
    
    
    43
    
    
    
    38Total stockholders equity
    
    
    18,289
    
    
    
    17,414Total liabilities and stockholders equity
    
    $
    41,058
    
    
    $
    51,729
  4




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Environmental Tectonics Corporation

Condensed Consolidated Statements of Cash Flows
 (unaudited)
(in thousands)
 Thirteen week periodsendedMay 28,
    
    
    May 29,2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    1,936
    
    
    $
    770Adjustments to reconcile net income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    346
    
    
    
    567Decrease in valuation allowance for deferred tax assets
    
    
    (867
    )
    
    
    Accretion of debt discount
    
    
    55
    
    
    
    95Increase in allowances for accounts receivable and inventories, net
    
    
    110
    
    
    
    316Income attributable to noncontrolling interest
    
    
    5
    
    
    
    2Stock compensation expense
    
    
    24
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    13,259
    
    
    
    (791
    )Costs and estimated earnings in excess of billings on uncompleted long-term contracts
    
    
    (90
    )
    
    
    (319
    )Inventories
    
    
    226
    
    
    
    (432
    )Prepaid expenses and other assets
    
    
    (1,057
    )
    
    
    214Deferred tax assets, net
    
    
    691
    
    
    
    Accounts payable
    
    
    (73
    )
    
    
    320Billings in excess of costs and estimated earnings on uncompleted long-term contracts
    
    
    (5,839
    )
    
    
    (1,337
    )Customer deposits
    
    
    (116
    )
    
    
    (966
    )Accrued interest and dividends
    
    
    51
    
    
    
    329Other accrued liabilities
    
    
    (417
    )
    
    
    76Net cash provided by (used in) operating activities
    
    
    8,244
    
    
    
    (1,156
    )Cash flows from investing activities:Acquisition of equipment
    
    
    (359
    )
    
    
    (289
    )Capitalized software development costs
    
    
    (220
    )
    
    
    (104
    )Net cash used in investing activities
    
    
    (579
    )
    
    
    (393
    )Cash flows from financing activities:(Repayment) borrowings under line of credit
    
    
    (5,300
    )
    
    
    1,400(Repurchase) issuance of preferred stock
    
    
    (1,000
    )
    
    
    55Issuance of common stock
    
    
    10
    
    
    
    1Payment of preferred stock dividends
    
    
    (576
    )
    
    
    Payments of other debt obligations
    
    
    (84
    )
    
    
    (2
    )Increase in restricted cash for performance guarantee
    
    
    (2,725
    )
    
    
    (7
    )Net cash (used in) provided by financing activities
    
    
    (9,675
    )
    
    
    1,447Effect of exchange rate changes on cash
    
    
    476
    
    
    
    (131
    )Net decrease in cash
    
    
    (1,534
    )
    
    
    (233
    )Cash at beginning of period
    
    
    2,408
    
    
    
    520Cash at end of period
    
    $
    874
    
    
    $
    287Supplemental schedule of cash flow information:Interest paid
    
    $
    96
    
    
    $
    103Income taxes paid
    
    
    182
    
    
    
    Supplemental information on non-cash operating and investing activities:Accrued dividends on preferred stock
    
    $
    577
    
    
    $
    235
  5




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Environmental Tectonics Corporation  
 Notes to the Condensed Consolidated Financial Statements
 1. Nature of Business:
  Training Services Group
 Control Systems Group
  2. Summary of Significant Accounting Policies
 Basis of Presentation
     Significant Accounting Policies
  6




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Environmental Tectonics Corporation  Notes to the Condensed Consolidated Financial Statements, continued
 3. Earnings Per Common Share :
   
    
    $55,000 of Series D Preferred Stock convertible at $0.94 per share, equating to
58,511 shares of common stock, issued in April 2009;
    
    $100,000 of Series D Preferred Stock convertible at $1.11 per share, equating to
90,090 shares of common stock, issued in July 2009;
    
    $22,741,000 of Series E Preferred Stock convertible at $2.00 per share, equating to
11,370,500 shares of common stock, issued in July 2009.
   Thirteen week period ended
    
    
    Thirteen week period endedMay 28, 2010
    
    
    
    
    
    
    
    
    
    
    May 29, 2009Income
    
    
    
    
    
    
    
    
    
    
    Income(amounts
    
    
    Weighted
    
    
    Per
    
    
    (amounts
    
    
    Weighted
    
    
    Perin
    
    
    average
    
    
    share
    
    
    in
    
    
    average
    
    
    sharethousands)
    
    
    shares
    
    
    amount
    
    
    thousands)
    
    
    shares
    
    
    amountNet income
    
    $
    1,936
    
    
    
    
    
    
    
    
    
    
    $
    770Less preferred stock dividends
    
    
    (577
    )
    
    
    
    
    
    
    
    
    
    
    (235
    )Basic earnings per share:Basic earnings available to common shareholders
    
    $
    1,359
    
    
    
    9,085,000
    
    
    $
    0.15
    
    
    $
    535
    
    
    
    9,054,000
    
    
    $
    0.06Effect of dilutive securities:Preferred stock
    
    
    
    
    
    
    11,519,000Stock options and warrants
    
    
    
    
    
    
    363,000Diluted earnings per share:Basic earnings available to common shareholders
    
    $
    1,359Add: Preferred stock dividend
    
    
    577Income available to common shareholders plus
effect of dilutive securities$
    1,936
    
    
    
    20,967,000
    
    
    $
    0.09
 7




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Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 4. Inventories
  May 28,
    
    
    February 26,2010
    
    
    2010(unaudited)(in thousands)Raw materials
    
    $
    
    
    
    $
    Work in process
    
    
    4,499
    
    
    
    4,764Finished goods
    
    
    289
    
    
    
    350Total
    
    $
    4,788
    
    
    $
    5,114
  5. Accounts Receivable:
  May 28,
    
    
    February 26,2010
    
    
    2010(unaudited)(in thousands)U.S. government
    
    $
    1,010
    
    
    $
    438U.S. commercial
    
    
    779
    
    
    
    1,403International
    
    
    2,724
    
    
    
    15,9304,513
    
    
    
    17,771Less: allowance for doubtful accounts
    
    
    (426
    )
    
    
    (415
    )$
    4,087
    
    
    $
    17,356
 6. Long-Term Obligations and Credit Arrangements:
 Lenfest Financing Transaction
  Lenfest Credit Facility
  8




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Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 Bank Credit and Facility
 Increased PNC Bank Credit Facility and Issuance of New Guarantee
      Amendment to the Credit Agreement
  9




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Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
   Dedicated Line of Credit Agreement with PNC Bank
    ETC-PZL Project Financing
   May 28,
    
    
    February 26,2010
    
    
    2010(amounts in thousands)Note payable to bank
    
    $
    4,300
    
    
    $
    9,600ETC-PZL project financing
    
    
    416
    
    
    
    486Automobile loan
    
    
    5
    
    
    
    7Total debt obligations
    
    
    4,721
    
    
    
    10,093Less current maturities
    
    
    213
    
    
    
    285Long-term obligations, net of current maturities
    
    $
    4,508
    
    
    $
    9,808
 10




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Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 7. Fair Value of Financial Instrument
   
    
    Level 1: Observable inputs such as quoted prices in active markets for identical assets
of liabilities;
    
    Level 2: Inputs other than quoted prices that are observable for the asset or liability,
either directly or indirectly; these include quoted prices for similar assets or
liabilities in active markets and quoted prices or identical assets or liabilities in
markets that are not active;
    
    Level 3: Unobservable inputs that are supported by little or no market activity, which
require the reporting entitys judgment or estimation.
 The assessment of the significance of a particular input to the fair value measurement requires
judgment and may affect the valuation of financial assets and financial liabilities and their
placement within the fair value hierarchy. The Companys financial liabilities that are
accounted for at fair value on a recurring basis using the discounted cash flow methodology are
summarized below:
 Fair Value Measurement atMay 28, 2010 using:Liabilities
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(amounts in thousands)Credit facility payable to bank
    
    $
    
    
    
    $
    
    
    
    $
    5,588
    
    
    $
    5,588ETC-PZL contract financing
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    392Total
    
    $
    
    
    
    $
    
    
    
    $
    5,980
    
    
    $
    5,980
 8. Income Taxes
   11




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Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  (in thousands)Thirteen week
    
    
    Thirteen weekperiod ended
    
    
    period endedMay 28, 2010
    
    
    May 29, 2009Currently payableFederal
    
    $
    120
    
    
    $
    State
    
    
    
    
    
    
    Foreign (benefits) taxes
    
    
    
    
    
    
    120
    
    
    
    Deferred:Federal
    
    
    (120
    )
    
    
    State
    
    
    
    
    
    
    Foreign benefit
    
    
    
    
    
    
    (120
    )$
    
    
    
    $
    
  Thirteen week
    
    
    Thirteen weekperiod ended
    
    
    period endedMay 28, 2010
    
    
    May 29, 2009Statutory income tax (benefit)
    
    
    34.0
    %
    
    
    34.0
    %State income tax, net of federal tax benefit
    
    
    3.8
    
    
    
    3.8Change in valuation allowance
    
    
    (37.8
    )
    
    
    (37.8
    )
    %
    
    
    
    %
  May 28,
    
    
    February 26,2010
    
    
    2010(amounts in thousands)Deferred tax assets:Net operating loss and credits
    
    $
    15,054
    
    
    $
    15,607Vacation reserve
    
    
    80
    
    
    
    80Inventory reserve
    
    
    918
    
    
    
    880Receivable reserve
    
    
    160
    
    
    
    156Warranty reserve
    
    
    117
    
    
    
    117Compensation and other reserves
    
    
    158
    
    
    
    32Other, net
    
    
    
    
    
    
    7416,487
    
    
    
    16,946Valuation Reserve
    
    
    (11,096
    )
    
    
    (11,963
    )Total current deferred tax asset
    
    
    5,391
    
    
    
    4,983Deferred tax liabilities:Amortization of capitalized software
    
    
    401
    
    
    
    350Depreciation
    
    
    2,897
    
    
    
    2,716Total non-current deferred tax liability
    
    
    3,298
    
    
    
    3,066Net deferred tax asset
    
    $
    2,093
    
    
    $
    1,917
  12




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Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 10. Commitments and Contingencies
 Mends International, Ltd.
  Administrative Agreement with U.S. Navy
  13




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Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
 11. Segment Information (unaudited):
  Training Services
    
    
    Control SystemsGroup (TSG)
    
    
    Group (CSG)
    
    
    Corporate
    
    
    Company Total(amounts in thousands)Thirteen weeks ended May 28, 2010:Net sales
    
    $
    7,932
    
    
    $
    4,189
    
    
    $
    
    
    
    $
    12,121Interest expense
    
    
    136
    
    
    
    92
    
    
    
    
    
    
    
    228Depreciation and amortization
    
    
    192
    
    
    
    154
    
    
    
    
    
    
    
    346Operating income (loss)
    
    
    1,409
    
    
    
    1,110
    
    
    
    (278
    )
    
    
    2,241Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Identifiable assets
    
    
    19,180
    
    
    
    5,797
    
    
    
    16,081
    
    
    
    41,058Expenditures for segment assets
    
    
    376
    
    
    
    81
    
    
    
    122
    
    
    
    579Thirteen weeks ended May 29, 2009:Net sales
    
    $
    6,915
    
    
    $
    2,666
    
    
    $
    
    
    
    $
    9,581Interest expense
    
    
    299
    
    
    
    217
    
    
    
    
    
    
    
    516Depreciation and amortization
    
    
    150
    
    
    
    417
    
    
    
    
    
    
    
    567Operating income (loss)
    
    
    1,894
    
    
    
    (170
    )
    
    
    (381
    )
    
    
    1,343Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Identifiable assets
    
    
    7,629
    
    
    
    5,556
    
    
    
    22,353
    
    
    
    35,538Expenditures for segment assets
    
    
    241
    
    
    
    155
    
    
    
    
    
    
    
    396
 Thirteen weeks
    
    
    Thirteen weeksended May 28, 2010:
    
    
    ended May 29, 2009Reconciliation to consolidated net income (loss):Operating income
    
    
    
    
    
    
    
    
    

    $
    2,241
    
    
    $
    1,343Interest expense
    
    
    
    
    
    
    
    
    

    
    (228
    )
    
    
    (516
    )Other, net
    
    
    
    
    
    
    
    
    
    
    (72
    )
    
    
    (55
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    (2
    )Net income
    
    
    
    
    
    
    
    
    
    $
    1,936
    
    
    $
    770
     14




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARDLOOKING STATEMENTS
         15




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
    
    Increased production under U.S. Government contracts
  
    
    Exchange of long term debt, establishment of additional facility, and increase in bank
line
  
    
    Positive impact of income taxes
  
    
    Continued expanded use of our NASTAR Center
    16




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
    
    Continued capital and consulting spending to enhance and market worldwide our Authentic
Tactical Fighting Systems (ATFS) and other technologies.
  
    
    Common stock dilution.
     17




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Results of Operations
 Thirteen weeks ended May 28, 2010 compared to thirteen weeks ended May 29, 2009
  Summary Table of Results13 weeks ended
    
    13 weeks ended
    
    Variance
    
    VarianceMay 28, 2010
    
    May 29, 2009
    
    $
    
    %(amounts in thousands)
    
    ( ) =UnfavorableSales:Domestic
    
    $
    2,918
    
    
    $
    1,959
    
    
    $
    959
    
    
    
    49.0
    %US Government
    
    
    3,986
    
    
    
    1,836
    
    
    
    2,150
    
    
    
    117.1International
    
    
    5,217
    
    
    
    5,786
    
    
    
    (569
    )
    
    
    (9.8
    )Total Sales
    
    
    12,121
    
    
    
    9,581
    
    
    
    2,540
    
    
    
    26.5Gross Profit
    
    
    5,130
    
    
    
    4,427
    
    
    
    703
    
    
    
    15.9Selling and marketing expenses
    
    
    1,102
    
    
    
    1,254
    
    
    
    152
    
    
    
    12.1General and administrative expenses
    
    
    1,463
    
    
    
    1,602
    
    
    
    139
    
    
    
    8.7Research and development expenses
    
    
    324
    
    
    
    228
    
    
    
    (96
    )
    
    
    (42.1
    )Operating income
    
    
    2,241
    
    
    
    1,343
    
    
    
    898
    
    
    
    66.9Interest expense, net
    
    
    228
    
    
    
    516
    
    
    
    288
    
    
    
    55.8Other expense, net
    
    
    72
    
    
    
    55
    
    
    
    (17
    )
    
    
    (30.9
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    n/aNoncontrolling interest
    
    
    5
    
    
    
    2
    
    
    
    (3
    )
    
    
    (150.0
    )Net income
    
    $
    1,936
    
    
    $
    770
    
    
    $
    1,166
    
    
    
    151.4
    %Net income per common share (basic)
    
    $
    0.15
    
    
    $
    0.06
    
    
    $
    0.09
    
    
    
    150.0
    %Net income per common share (diluted)
    
    $
    0.09
    
    
    $
    0.06
    
    
    $
    0.03
    
    
    
    50.0
    %
 Net Income
 $
 18




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##### Table of Contents



Sales
  (amounts in thousands)Thirteen week period ended
    
    Thirteen week period endedMay 28, 2010
    
    May 29, 2009Segment sales:
    
    Domestic
    
    USG
    
    Inter-national
    
    Total
    
    Domestic
    
    USG
    
    Inter-national
    
    TotalTraining Services Group:Pilot Training Services
    
    $
    1
    
    
    $
    4,003
    
    
    $
    3,733
    
    
    $
    7,737
    
    
    $
    36
    
    
    $
    1,345
    
    
    $
    3,916
    
    
    $
    5,297Simulation
    
    
    
    
    
    
    
    
    
    
    96
    
    
    
    96
    
    
    
    201
    
    
    
    
    
    
    
    1,144
    
    
    
    1,345ETC-PZL and other
    
    
    33
    
    
    
    
    
    
    
    66
    
    
    
    99
    
    
    
    91
    
    
    
    
    
    
    
    182
    
    
    
    273Total
    
    $
    34
    
    
    $
    4,003
    
    
    $
    3,895
    
    
    $
    7,932
    
    
    $
    328
    
    
    $
    1,345
    
    
    $
    5,242
    
    
    $
    6,915Control Systems Group:Environmental
    
    $
    108
    
    
    $
    (17
    )
    
    $
    977
    
    
    $
    1,068
    
    
    $
    374
    
    
    $
    491
    
    
    $
    269
    
    
    $
    1,134Sterilizers
    
    
    1,725
    
    
    
    
    
    
    
    
    
    
    
    1,725
    
    
    
    218
    
    
    
    
    
    
    
    
    
    
    
    218Hyperbaric
    
    
    610
    
    
    
    `
    
    
    
    199
    
    
    
    809
    
    
    
    628
    
    
    
    `
    
    
    
    183
    
    
    
    811Service and spares
    
    
    441
    
    
    
    
    
    
    
    146
    
    
    
    587
    
    
    
    411
    
    
    
    
    
    
    
    92
    
    
    
    503Total
    
    
    2,884
    
    
    
    (17
    )
    
    
    1,322
    
    
    
    4,189
    
    
    
    1,631
    
    
    
    491
    
    
    
    544
    
    
    
    2,666Company total
    
    $
    2,918
    
    
    $
    3,986
    
    
    $
    5,217
    
    
    $
    12,121
    
    
    $
    1,959
    
    
    $
    1,836
    
    
    $
    5,786
    
    
    $
    9,581
  Domestic Sales
 $
  International Sales
   Gross Profit
  Selling and Marketing Expenses
  19




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##### Table of Contents



General and Administrative Expenses
  Research and Development Expenses
  Interest Expense
  Other Expense, Net
  Income Taxes
   Liquidity and Capital Resources
    Total
    
    Amount
    
    Amount
    
    Total
    
    Amount
    
    AmountFacility
    
    Borrowed
    
    Available
    
    Facility
    
    Borrowed
    
    AvailableCredit facility*
    
    As of May 28, 2010:
    
    As of February 26, 2010:PNC line of credit
    
    $
    20,000
    
    
    $
    5,835
    
    
    $
    14,165
    
    
    $
    20,000
    
    
    $
    11,128
    
    
    $
    8,872Lenfest credit line
    
    
    7,500
    
    
    
    
    
    
    
    7,500
    
    
    
    7,500
    
    
    
    
    
    
    
    7,500Dedicated line of credit
    
    
    5,422
    
    
    
    5,422
    
    
    
    
    
    
    
    5,422
    
    
    
    5,422
    
    
    
    Total
    
    $
    32,922
    
    
    $
    11,257
    
    
    $
    21,665
    
    
    $
    32,922
    
    
    $
    16,550
    
    
    $
    16,372
 
 *
    
    See Note 6  Long-tem Debt and Credit Arrangements in the Notes to the Condensed
Consolidated Financial Statements. 20




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##### Table of Contents



Net cash provided by (used for) operating activities:
   Net cash used for investing activities:
  Net cash used for financing activities:
  Outlook
  Backlog
  May 26, 2010
    
    Business segment:Geographic area:
    
    TSG
    
    CSG
    
    Total
    
    %Domestic
    
    $
    1,214
    
    
    $
    5,784
    
    
    $
    6,998
    
    
    
    7.6
    %US Government
    
    
    45,810
    
    
    
    66
    
    
    
    45,876
    
    
    
    49.9International
    
    
    32,635
    
    
    
    6,419
    
    
    
    39,054
    
    
    
    42.5Total
    
    $
    79,659
    
    
    $
    12,269
    
    
    $
    91,928
    
    
    
    100.0
    %% of total
    
    
    86.7
    %
    
    
    13.3
    %
    
    
    100.0
    %
 February 26, 2010
    
    Business segment:Geographic area:
    
    TSG
    
    CSG
    
    Total
    
    %Domestic
    
    $
    210
    
    
    $
    3,772
    
    
    $
    3,982
    
    
    
    4.1
    %US Government
    
    
    49,111
    
    
    
    48
    
    
    
    49,159
    
    
    
    51.0International
    
    
    36,244
    
    
    
    7,579
    
    
    
    43,823
    
    
    
    44.9Total
    
    $
    85,565
    
    
    $
    11,399
    
    
    $
    96,964
    
    
    
    100.0
    %% of total
    
    
    88.2
    %
    
    
    11.8
    %
    
    
    100.0
    %
 ,
  21




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##### Table of Contents



Item 4T. Controls and Procedures
     
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Mends International, Ltd.
  Administrative Agreement with U.S. Navy
  Other Matters
  22




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Other Information
  
 Item 5. 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 July 6, 2009, and are incorporated
herein by reference.10.1
    
    Amendment to Loan Documents dated as of May 7, 2010, between the
Registrant, H.F. Lenfest and PNC Bank, National Association was
filed on June 1, 2010 as Exhibit 1.1 to Form 8-K and is
incorporated by reference.10.2
    
    Amendment to Loan Documents dated as of June 2, 2010 between the
Registrant and PNC Bank, National Association, (filed herewith).31.1
    
    Certification dated July 12, 2009 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 July 12, 2009 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 July 12, 2009 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.
 23




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##### Table of Contents



Signatures
  ENVIRONMENTAL TECTONICS CORPORATION
(Registrant)Date:   July 12, 2010
    By:
    /s/ William F. MitchellWilliam F. MitchellPresident and Chief
Executive Officer
(Principal Executive Officer)Date:   July 12, 2010
    By:
    /s/ Duane DeanerDuane Deaner,Chief Financial Officer
(Principal Financial and Accounting Officer)