##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q/A
 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 organization)
    
    (I.R.S. Employer Identification No.)
 
  o þ
 o þ
  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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##### 



EXPLANATORY NOTE
    
    
    3PART I  FINANCIAL INFORMATION
    
    
    4Item 1. Financial Statements (unaudited)
    
    
    4Condensed Consolidated Income Statements (unaudited) for the thirteen week periods ended May
28, 2010 and May 29, 2009 (restated)
    
    
    4Condensed Consolidated Balance Sheets (unaudited) as of May 28, 2010 and February 26, 2010
    
    
    5Condensed Consolidated Statements of Cash Flows (unaudited) for the thirteen week periods ended May 28, 2010 and May 29, 2009
    
    
    6Notes to the Condensed Consolidated Financial Statements (unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    22Item 4. Controls and Procedures
    
    
    30PART II  OTHER INFORMATION
    
    
    31Item 1. Legal Proceedings
    
    
    31Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults Upon Senior Securities
    
    
    32Item 4. Other Information
    
    
    32Item 5. Exhibits
    
    
    32Signatures
    
    
    33EX-31.1EX-31.2EX-32
   2




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##### Table of Contents



Explanatory Note
    1.
    
    The inclusion in Item 4, Controls and Procedures, of a complete and
properly worded disclosure pursuant to Items 307 and 308 of Regulation S-K of
the SEC; and2.
    
    A restatement of the Companys earnings per share on the consolidated
statement of operations for the thirteen week periods ended May 28, 2010 and May
29, 2009 to correct an error in the method of calculating the participating feature
of the Companys preferred stock in the basic earning per share calculation.
Please refer to the Companys Current Report on Form 8-K filed on November 30,
2010, for a further explanation of this restatement.
   1.
    
    Form 10-K/A for the period ended February 26, 2010 originally filed on
May 27, 2010 and amended on March 15, 2011;2.
    
    Form 10-Q/A for the period ended August 27, 2010 originally filed on
October 6, 2010 and amended on March 15, 2011; and3.
    
    Form 10-Q for the period ended November 26, 2010, filed January 10,
2011.
 3




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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 week periods endedMay 28, 2010
    
    
    May 29, 2009(restated)
    
    
    (restated)Net 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
    
    
    
    
    
    
    Net income
    
    
    1,941
    
    
    
    772Income attributable to noncontrolling interest
    
    
    5
    
    
    
    2Net income attributable to Environmental
Tectonics Corporation
    
    
    1,936
    
    
    
    770Preferred stock dividend
    
    
    (577
    )
    
    
    (235
    )Income applicable to common shareholders
    
    $
    1,359
    
    
    $
    535Per share information:Basic earnings per common share:Distributed earnings per share:Common
    
    $
    
    
    
    $
    Preferred
    
    $
    0.05
    
    
    $
    0.11Undistributed earnings per share:Common
    
    $
    0.03
    
    
    $
    0.04Preferred
    
    $
    0.04
    
    
    $
    0.01Diluted earnings per common share
    
    $
    0.06
    
    
    $
    0.05Basic weighted average common shares:Common shares
    
    
    9,085,000
    
    
    
    9,054,000Participating Preferred shares
    
    
    11,634,000
    
    
    
    2,167,000Total number of shares
    
    
    20,719,000
    
    
    
    11,221,000Diluted weighted average common shares:Basic common shares
    
    
    20,719,000
    
    
    
    11,221,000Dilutive effect of stock warrants and options
    
    
    363,000
    
    
    
    Total number of shares
    
    
    21,082,000
    
    
    
    11,221,000
  4




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##### Table of Contents



Environmental Tectonics Corporation
 
 Condensed Consolidated Balance Sheets
 (in thousands, except share information)
 May 28,
    
    
    February 26,2010
    
    

    2010(unaudited)ASSETSCash 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
  5




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##### Table of Contents



Environmental Tectonics Corporation
 
 Condensed Consolidated Statements of Cash Flows
 (unaudited)
(in thousands)
 Thirteen week periods endedMay 28, 2010
    
    
    May 29, 2009(restated)
    
    
    (restated)Cash flows from operating activities:Net income
    
    $
    1,941
    
    
    $
    772Adjustments 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
    
    
    
    316Stock 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
  6




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Environmental Tectonics Corporation
 
 Notes to the Condensed Consolidated Financial Statements
 1. Restatement of Previously Filed Financial Statements:
   2. Summary of Significant Accounting Policies
 Nature of Business
  Training Services Group
 Control Systems Group
  Basis of Presentation
     7




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Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 Significant Accounting Policies
  Recent Accounting Pronouncements
 Multiple-Deliverable Revenue Arrangements Revenue Arrangements with Multiple Deliverables
 Revenue Arrangements with Multiple Deliverables
  8




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 3. Earnings Per Common Share :
      
    
    Series D Preferred Stock of $55,000 at $0.94 per share, equating to 58,511 shares of
common stock, issued in April 2009;
    
    Series D Preferred Stock of $100,000 at $1.11 per share, equating to 90,090 shares
of common stock, issued in July 2009;
    
    Series E Preferred Stock of $22,741,000 at $2.00 per share, equating to 11,370,500
shares of common stock, issued in July 2009.
  
    
    Series B Preferred Stock of $3,000,000 at $4.95 per share, equating to 606,061
shares of common stock, issued in April 2006;
    
    Series B Preferred Stock of $3,000,000 at $6.68 per share, equating to 499,102
shares of common stock, issued in July 2006;
    
    Series C Preferred Stock of $3,300,000 at $3.03 per share, equating to 1,089,108
shares of common stock, issued in August 2007.
    
    Series D Preferred Stock of $55,000 at $0.94 per share, equating to 58,511 shares of
common stock, issued in April 2009.
    9




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
  Thirteen week
    
    
    Thirteen weekperiods ended
    
    
    periods endedMay 28, 2010
    
    
    
    
    
    
    May 29, 2009May 28, 2010
    
    
    (as originally
    
    
    May 29, 2009
    
    
    (as originally(restated)
    
    
    reported)
    
    
    (restated)
    
    
    reported)(amounts in thousands except share and per share information)Earnings per share:Basic earnings per share:Net income attributable to Environmental Tectonics Corporation
    
    $
    1,936
    
    
    $
    1,936
    
    
    $
    770
    
    
    $
    770Less preferred stock dividends
    
    
    (577
    )
    
    
    (577
    )
    
    
    (235
    )
    
    
    (235
    )Income applicable to common shareholders
    
    $
    1,359
    
    
    $
    1,359
    
    
    $
    535
    
    
    $
    535Basic earnings per share:Common weighted average number of shares
    
    
    9,085,000
    
    
    
    9,085,000
    
    
    
    9,054,000
    
    
    
    9,054,000Participating preferred weighted average number of common
shares
    
    
    11,634,000
    
    
    
    
    
    
    
    2,167,000
    
    
    
    Total weighted average number of shares
    
    
    20,719,000
    
    
    
    9,085,000
    
    
    
    11,221,000
    
    
    
    9,054,000Distributed earnings per share:Common
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Preferred
    
    $
    0.05
    
    
    $
    
    
    
    $
    0.11
    
    
    $
    Undistributed earnings per share:Common
    
    $
    0.03
    
    
    $
    0.15
    
    
    $
    0.04
    
    
    $
    0.06Preferred
    
    $
    0.04
    
    
    $
    
    
    
    $
    0.01
    
    
    $
    Diluted earnings per share:Total weighted average number of shares
    
    
    20,719,000
    
    
    
    9,085,000
    
    
    
    11,221,000
    
    
    
    9,054,000Dilutive effect of preferred stock
    
    
    
    
    
    
    11,519,000
    
    
    
    
    
    
    
    Dilutive effect of stock options and stock warrants
    
    
    363,000
    
    
    
    363,000
    
    
    
    
    
    
    
    Total diluted weighted average number of shares
    
    
    21,082,000
    
    
    
    20,967,000
    
    
    
    11,221,000
    
    
    
    9,054,000Diluted earnings per share
    
    $
    0.06
    
    
    $
    0.09
    
    
    $
    0.05
    
    
    $
    0.06
 10




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##### Table of Contents



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
   11




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 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
 12




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Consolidated Financial Statements, continued
 6. Long-Term Obligations and Credit Arrangements:
 Bank Credit and Facility
 Increased PNC Bank Credit Facility and Issuance of New Guarantee
      Amendment to the Credit Agreement
  13




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Consolidated Financial Statements, continued
   Dedicated Line of Credit Agreement with PNC Bank
    Lenfest Credit Facility
  ETC-PZL Project Financing
  Lenfest Financing Transaction
  14




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Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 Preferred Stock
     Series D Preferred Stock
    15




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Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 Series E Preferred Stock
     Common Stock Warrants
     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
 16




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 7. Fair Value of Financial Instruments
   
    
    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 are accounted for at cost. The fair value of these
instruments, calculated on a recurring basis using the discounted cash flow methodology, is
summarized below (amounts in thousands):
 Fair Value Measurement atMay 28, 2010 using:Liabilities
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalCredit facility payable to bank
    
    $
    
    
    
    $
    
    
    
    $
    5,588
    
    
    $
    5,588ETC-PZL contract financing
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    392Total
    
    $
    
    
    
    $
    
    
    
    $
    5,980
    
    
    $
    5,980
 Fair Value Measurement atFebruary 26, 2010 using:Liabilities
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalCredit facility payable to bank
    
    $
    
    
    
    $
    
    
    
    $
    10,551
    
    
    $
    10,551ETC-PZL contract financing
    
    
    
    
    
    
    
    
    
    
    453
    
    
    
    453Interest rate swap agreements
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    85Total
    
    $
    
    
    
    $
    85
    
    
    $
    11,004
    
    
    $
    11,089
 8. Income Taxes
   17




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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
  18




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Consolidated Financial Statements, continued
 9. Commitments and Contingencies
 Mends International, Ltd.
  Administrative Agreement with U.S. Navy
  19




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 10. Segment Information (unaudited):
  Training Services
    
    
    Control SystemsGroup (TSG)
    
    
    Group (CSG)
    
    
    Corporate

    
    
    Company TotalThirteen weeks ended May 28, 2010:
    
    
    
    
    
    (amounts in thousands)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
 Reconciliation to consolidated net
    
    Thirteen weeks
    
    
    Thirteen weeksincome attributable to Environmental
    
    ended May 28,
    
    
    ended May 29,Tectonics Corporation:
    
    2010:
    
    
    2009Operating income
    
    $
    2,241
    
    
    $
    1,343Interest expense
    
    
    (228
    )
    
    
    (516
    )Other, net
    
    
    (72
    )
    
    
    (55
    )Income tax benefit
    
    
    
    
    
    
    Income
attributable to the noncontrolling interest
    
    
    (5
    )
    
    
    (2
    )Net income
attributable to Environmental Tectonics Corporation
    
    $
    1,936
    
    
    $
    770
    20




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##### Table of Contents



Environmental Tectonics Corporation
 Notes to the Condensed Consolidated Financial Statements, continued
 11. Subsequent Event
  21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
         22




---



##### Table of Contents




    
    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
    23




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##### Table of Contents




    
    Continued capital and consulting spending to enhance and market worldwide our Authentic
Tactical Fighting Systems (ATFS) and other technologies.
  
    
    Common stock dilution.
     24




---



##### Table of Contents



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 endedMay 28, 2010
    
    
    May 29, 2009
    
    
    Variance
    
    
    Variance(Restated)
    
    
    (Restated)
    
    
    $
    
    
    %(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/aIncome attributable to the noncontrolling interest
    
    
    5
    
    
    
    2
    
    
    
    (3
    )
    
    
    (150.0
    )Net income attributable to Environmental Tectonics
Corporation
    
    
    1,936
    
    
    
    770
    
    
    
    1,166
    
    
    
    151.4
    %Preferred stock dividend
    
    
    (577
    )
    
    
    (235
    )
    
    
    (342
    )
    
    
    (145.5
    )Income applicable to common shareholders
    
    $
    1,359
    
    
    $
    535
    
    
    $
    824
    
    
    
    154.0
    %Per share information (restated):Basic earnings per common share:Distributed earnings per share:Common
    
    $
    
    
    
    $
    Preferred
    
    $
    0.05
    
    
    $
    0.11Undistributed earnings per share:Common
    
    $
    0.03
    
    
    $
    0.04Preferred
    
    $
    0.04
    
    
    $
    0.01Diluted earnings per common share
    
    $
    0.06
    
    
    $
    0.05
 Net Income
 $
 25




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##### Table of Contents



Sales
  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
  26




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##### Table of Contents



Selling and Marketing Expenses
  General and Administrative Expenses
  Research and Development Expenses
  Interest Expense
  Other Expense, Net
  Income Taxes
   Liquidity and Capital Resources
   27




---



##### Table of Contents



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. Cash flows from operating activities:
   Cash flows from investing activities:
  Cash flows from financing activities:
  Outlook
  28




---



##### Table of Contents



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
    %
 ,
  29




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##### Table of Contents



Item 4. Controls and Procedures
  Evaluation of Disclosure Control and Procedures
  Material Weaknesses in Internal Control Over Financial Reporting
     Remediation Efforts
   
    
    Company management will prepare, publish and enforce a detailed reporting
schedule which will allow adequate time for proper review by a newly formed
compliance disclosure committee. This committee will include Company accounting
personnel, the Companys General Counsel and the Companys key operations personnel.
The role of this committee will be to assure that all public filings have been
reviewed for regulatory compliance and adequate disclosure and that all suggested
revisions have been properly incorporated;
    
    Company management will review all procedural controls to ensure that (1) all
process participants clearly understand their respective individual roles and the
overall control environment, and (2) downstream controls and other checks and
balances in the control environment are functioning adequately; and
    
    if appropriate, for specific non-routine complex accounting transactions,
management will engage a separate accounting firm to support management in
accounting for these transactions.
 30




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##### Table of Contents



Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Mends International, Ltd.
  Administrative Agreement with U.S. Navy
  Other Matters
  31




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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 March 15, 2011 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 March 15, 2011 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 March 15, 2011 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.
 32




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##### Table of Contents



Signatures
  ENVIRONMENTAL TECTONICS CORPORATION
(Registrant)Date:   March 15, 2011
    By:
    /s/ William F. MitchellWilliam F. MitchellPresident and Chief
Executive Officer
(Principal Executive Officer)Date:   March 15, 2011
    By:
    /s/ Duane DeanerDuane Deaner,Chief Financial Officer
(Principal Financial and Accounting Officer) 33