##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K

(Mark One)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
| 
|  |  | For the fiscal year ended June 30, 2002                                                 
| 
|  |  | OR                                                                                      
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission file number 001-8988

ECC INTERNATIONAL CORP.

---

(Exact name of registrant as specified in its charter)


|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Delaware                                                       |  | 23-1714658                             
|                                                               |  |                                        
|(State of other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)

|                                           |  |           
|------------------------------------------ |  | ----------
|2001 West Oak Ridge Road, Orlando, Florida |  | 32809-3803
|                                           |  |           
|(Address of principal executive offices )  |  | (Zip Code)

Registrants telephone number, including area code (407) 859-7410

Securities registered pursuant to Section 12(b) of the Act:

|                             |  |                                          
|---------------------------- |  | -----------------------------------------
|Title of each class          |  | Name of each exchange on which registered
|                             |  |                                          
|Common Stock, $.10 par value |  | American Stock Exchange                  

Securities registered pursuant to Section 12(g) of the Act:

None

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(Title of class)


Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
x

 YES      o

 NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. x

As of September 16, 2002, the aggregate market value of the Registrants Common
Stock held by non-affiliates of the Registrant was $14,678,303. (This figure
was computed on the basis of the closing price for the Registrants Common
Stock on September 16, 2002 using the number of shares held by stockholders
who are not officers, directors or record holders of 10% or more of the
Registrants outstanding Common Stock. The characterization of such officers,
directors and 10% stockholders as affiliates is for purposes of the computation
only and should not be construed as an admission for any purpose whatsoever
that any of such persons are, in fact, affiliates of the Registrant.)

As of September 16, 2002, there were 7,878,124 shares of the Registrants
Common Stock, $0.10 par value per share, outstanding.

Information with respect to directors in Item 10 and the information required
by Items 11-13 is incorporated by reference to the definitive proxy statement
of the Registrant to be filed with the Commission in connection with its Annual
Meeting of Stockholders scheduled for December 13, 2002.

The Exhibit Index is located on pages 41 through 44.

Page 1 of 54



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PART I

Item 1. Business

(a) General Development of Business

|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | ECC International Corp, a Delaware corporation organized in 1969 (the
Company or ECC), designs, manufactures and markets computer controlled
simulators used primarily for training personnel to perform maintenance
and operator procedures on military weapons systems. The Companys
simulators measure performance as a trainee operates the equipment,
conducts equipment tests, diagnoses programmed malfunctions and takes
corrective actions. The Companys equipment is used by all four branches
of the U.S. Department of Defense as well as numerous foreign governments
for operator training and maintenance training for aircraft, missiles,
tanks, combat vehicles and small arms weapons. The Companys systems also
have potential commercial application in areas such as law enforcement
training.
|   
|    |  | To support its training systems, the Company also develops training
curricula, conducts training courses, develops instruction handbooks and
operates a logistics support center.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | The Company designs and manufactures a significant portion of the components
of its simulator systems, with the exception of certain equipment which is
commercially available, such as computers, modified weapons, CRTs, disk
drives and printers, which it purchases. The Company is not dependent on
any one supplier for raw materials or computer related equipment used in or
sold as part of its systems. The Companys systems are marketed through a
direct sales force and independent international sales representatives.                                                                                                                                                                                                                                                                                    
|   
|    |  | During fiscal year 1998, the Company completed the sale of its vending
operations assets. The sale of the vending operation was accounted for as a
discontinued operation and accordingly, the vending operations were
segregated in the accompanying Selected Financial Data. During fiscal year
1999, the Company completed the wind-down of its U.K. operation, ECC
Simulation Limited, (the U.K. operation)                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|(2) |  | Not applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

(b) Financial Information about Industry Segments

| |  |                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The Company operates only in the training segment. This segment includes
the design and manufacture of training simulators and the development of
training programs and curricula. See note 12 in the Notes to the
Consolidated Financial Statements.

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(c) Narrative Description of Business

|    |  |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | (i)   |  | Principal Products, Services and Revenue Sources                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  |       |  | See the information set forth above in Item 1(a) and (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | (ii)  |  | New Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  |       |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | (iii) |  | Raw Materials                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|    |  |       |  | The components used in training systems, as well as the parts used to
manufacture the computers and devices used in the Companys systems
are purchased from original equipment manufacturers, electronics
supply firms and others. The Company has no reason to believe that it
cannot continue to obtain such components, or suitable substitutes, as
it may require.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | (iv)  |  | Patents, Trademarks, Licenses, Franchises and Concessions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  |       |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | (v)   |  | Seasonality of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  |       |  | The Companys business is not seasonal in nature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | (vi)  |  | Working Capital Practices                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  |       |  | The Companys working capital practices are similar to other
government contractors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | (vii) |  | Dependence on Customer                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  |       |  | The Companys training business is government related and channeled to
the Company principally through the United States Department of
Defense. For the fiscal year ended June 30, 2002, 23% of sales were
made directly to the U.S. Department of Defense, while 76% of sales
were made to various other contractors for ultimate use by the U.S.
Department of Defense. Within the U.S. Department of Defense, there
are various agencies that are customers of the Company, with the
largest being the U.S. Army. The largest prime contractors that are
customers of the Company are Raytheon/Lockheed Martin JAVELIN Joint
Venture (the Joint Venture) and Lockheed Martin Corporation
(Lockheed). Sales to the Joint Venture were 52% of the total sales
and sales to Lockheed accounted for 13% of total sales. See note 12
in the Notes to the Consolidated Financial Statements.

Page 3 of 54



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| |  |        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | (viii) |  | Backlog                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  |        |  | At June 30, 2002, the Companys backlog (which represents that portion
of outstanding contracts not yet included in revenue) was
approximately $80 million of which $57 million represented contract
options, which have not yet been exercised by the customer. At June
30, 2001, the Companys backlog was $103 million of which $85 million
represented contract options. It is anticipated that approximately
90% of the backlog, exclusive of contract options, at June 30, 2002
will be delivered during the fiscal year ending June 30, 2003.                                                                                                                                                                                                                                 
|
| |  | (ix)   |  | Renegotiation or Termination of Contracts or Subcontracts at
Governments Election                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |        |  | The Companys government contracts contain standard terms permitting termination
without cause at the option of the government. In the event of
termination of such contracts, the Company is entitled to receive
reimbursement on the basis of work completed (cost incurred plus a
reasonable profit)                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | (x)    |  | Competitive Conditions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  |        |  | The Company competes with a large number of firms. Many of the
Companys competitors are substantially larger and have greater
financial resources. Competition is based upon both price and
performance considerations. Positive factors pertaining to the
Companys competitive position are that the Company has a large base
of installed systems and extensive experience in the computer
controlled maintenance simulation field. The Company believes that
this defense segment continues to have growth potential and expects to
see new competitors in this market.                                                                                                                                                                                                         
|
| |  | (xi)   |  | Independent Research and Development (IR&D)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |        |  | During the fiscal years ended June 30, 2002, 2001 and 2000,
approximately $1,597,000, $957,000 and $376,000, respectively, was
spent on Company sponsored research activities, including
manufacturing, engineering and software development relating to the
development of new products and product enhancements. During fiscal
years 2002, 2001 and 2000, the Company did not have any customer
sponsored research activities. During the fiscal year ended June 30,
2002, the Company employed the equivalent of seven full-time
professional employees whose prime responsibility was in research and
development activities. From time to time, the Company utilizes the
specialized skills of many of its other employees and contract
personnel on a limited engagement basis.
|
| |  | (xii)  |  | Environment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |        |  | Not Applicable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | (xiii) |  | Number of Persons Employed                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |        |  | As of June 30, 2002, the Company employed approximately 140 persons.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Page 4 of 54



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(d) Financial Information about Foreign and Domestic Operations and Export Sales

Export sales were immaterial to the Companys gross sales. See note 12 in
the Notes to the Consolidated Financial Statements.

Item 2. Properties

The Company owns its simulation development and manufacturing facilities, which
are situated on 25 acres in Orlando, Florida. The main plant facility totals
398,086 square feet and ancillary buildings on the property total 69,847 square
feet. The Company considers the capacity of its facilities to exceed its
present needs and is in the process of attempting to sell the facilities to a
third party with a long term leaseback of approximately 90,000 square feet. To
date, the Company has no agreements, commitments or understandings with respect
to the sale of the facility.

Item 3. Legal Proceedings

Currently, the Company is not a party to any material pending legal
proceedings.

Item 4. Submissions of Matters to a Vote of Security Holders

There was no vote of security holders during the fourth quarter of the fiscal
year.

Page 5 of 54



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Executive Officers and Key Management Employees of the Registrant

Each of the following officers and key management employees of the Company was
elected by the Board of Directors and serves at the discretion of the Board.

|                           |  |     |    |                              |  |                                           |  |  |      |  |  | 
|-------------------------- |  | --- | -- | ---------------------------- |  | ----------------------------------------- |  |  | ---- |  |  | 
|Name                       |  | Age |    | Position with the Registrant |  | Officer Since                            
|                           |  |     |    |                              |  |                                          
|James R. Henderson         |  |     | 44 |                              |  | Acting President, Chief Executive Officer |  |  | 2002 | 
|                          
|Melissa A. Van Valkenburgh |  |     | 49 |                              |  | Chief Financial Officer                   |  |  | 1999 | 
|                          
|Terry W. Kohl*             |  |     | 45 |                              |  | Vice President, Business Development      |  |  | 2002 | 

Mr. Henderson assumed his position in July 2002; Ms. Van Valkenburgh assumed
her position in March 1999; and Ms. Kohl assumed her position in July 2002.

Mr. Hendersonhas been Vice President
of Operations of Steel Partners, Ltd., for
3 years. He was previously employed for 3 years by Ayden Corporation, most
recently as President and Chief Operating Officer. Prior to that he was
employed by Unisys Corporation. Mr. Henderson has been on the Board of
Directors since 1999. Upon the departure of Dr. James C. Garrett as of June
30, 2002, Mr. Henderson was appointed as Acting President and Chief Executive
Officer by the Board.

Ms. Van Valkenburghis a Certified Public Accountant who most recently was
Controller of Applied Materials Incorporated at their Austin, Texas site. She
previously served for 17 years at Rockwell International where she was
Controller of several of its Defense Electronic Divisions. Prior to that, she
worked in public accounting with Deloitte & Touche for 5 years.

Ms. Kohlhas worked for ECC International Corp., since 1985. She began as a
Simulation Analyst and advanced through several positions over the years,
including Deputy Program Manager and Director of Contracts. Her most recent
position with the Company was as Business Area Director for Engagement Skills
Training Systems.



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|* |  | Key management employees who are not officers for the purposes of Section
16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

Page 6 of 54



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PART II

Item 5. Market for the Registrants Common Stock and Related Stockholder Matters

(a) Market Information

The Common Stock of the Company is currently listed on the American Stock
Exchange (symbol ECC). Prior to November 6, 2000, the Company was listed on
the New York Stock Exchange. The price range of the Common Stock during the
last two fiscal years was as follows:

|                   |  |      |      |     |  |   |      | 
|------------------ |  | ---- | ---- | --- |  | - | ---- | 
|Quarter Ended      |  | High |      | Low
|                   |  |      |      |    
|June 30, 2002      |  | $    | 3.90 |     |  | $ | 2.53 | 
|March 31, 2002     |  |      | 3.10 |     |  |   | 1.90 | 
|December 31, 2001  |  |      | 3.65 |     |  |   | 2.85 | 
|September 30, 2001 |  |      | 3.75 |     |  |   | 3.01 | 
|June 30, 2001      |  |      | 3.66 |     |  |   | 3.25 | 
|March 31, 2001     |  |      | 3.88 |     |  |   | 3.41 | 
|December 31, 2000  |  |      | 4.00 |     |  |   | 3.13 | 
|September 30, 2000 |  |      | 4.00 |     |  |   | 2.81 | 

Common stock prices shown above are the daily sales prices on the American or
New York Stock Exchange. During the fiscal year ended June 30, 2001, the
Company repurchased 727,000 shares of common stock through open-market
purchases.

(b) Holders

As of September 16, 2002, the Company had approximately 836 stockholders of
record of its common stock based on the transfer agents listings. The Company
believes its shares are beneficially held by several thousand additional
stockholders based on broker dealer demand for proxy materials in 2001.

(c) Dividends

No cash dividends have been declared on the Companys common stock during the
last seven years. Under the Companys Credit Facility, the Company is not
permitted to pay cash dividends. See note 7 in the Notes to the Consolidated
Financial Statements.

Page 7 of 54



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Item 6. Selected Financial Data

(In Thousands, Except Per Share Data)

|                                                         |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|-------------------------------------------------------- |  | -------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | - |  | - | ------- | -
|                                                         |  | Years Ended June 30,
|                                                         |  |                     
|                                                         |  | 2002                 |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                                         |  |                      |        |      |  |      |        |      |  |     
|Operating Data:                                          |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Continuing Operations:                                   |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Net Sales                                                |  | $                    | 31,961 |      |  | $    | 28,736 |      |  | $    | 40,876 |  |  | $ | 48,676 |   |  | $ | 52,618  |  
|Operating Income/(Loss)                                  |  |                      | 2,719  |      |  |      | (6,876 | )    |  |      | 3,985  |  |  |   | (3,874 | ) |  |   | (13,775 | )
|Net Income/(Loss)                                        |  |                      | 2,959  |      |  |      | (7,139 | )    |  |      | 3,389  |  |  |   | (3,546 | ) |  |   | (12,409 | )
|Discontinued Operations:                                 |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Net Sales                                                |  |                      |       |      |  |      |       |      |  |      |       |  |  |   |       |   |  |   |        |  
|Operating Income/(Loss)                                  |  |                      |       |      |  |      |       |      |  |      |       |  |  |   |       |   |  |   |        |  
|Net Income/(Loss)                                        |  |                      |       |      |  |      |       |      |  |      |       |  |  |   |       |   |  |   | (407    | )
|Per Share Data Basic:                                    |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Weighted Average Number of
Common Shares Outstanding     |  |                      | 7,835  |      |  |      | 8,025  |      |  |      | 8,436  |  |  |   | 8,346  |   |  |   | 8,174   |  
|Earnings/(Loss) Per Common Share
Continuing Operations   |  | $                    | 0.38   |      |  | $    | (0.89  | )    |  | $    | 0.40   |  |  | $ | (0.42  | ) |  | $ | (1.52   | )
|Earnings/(Loss) Per Common Share
Discontinued Operations |  |                      |       |      |  |      |       |      |  |      |       |  |  |   |       |   |  |   | (0.05   | )
|                                                         |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Earnings/(Loss) Per Common Share                         |  | $                    | 0.38   |      |  | $    | (0.89  | )    |  | $    | 0.40   |  |  | $ | (0.42  | ) |  | $ | (1.57   | )
|                                                         |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Cash Dividends Per Common Share                          |  | $                    |       |      |  | $    |       |      |  | $    |       |  |  | $ |       |   |  | $ |        |  
|                                                         |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Per Share Data-Assuming Dilution:                        |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Weighted Average Number of
Common Shares Outstanding     |  |                      | 7,852  |      |  |      | 8,025  |      |  |      | 8,485  |  |  |   | 8,346  |   |  |   | 8,174   |  
|Earnings/(Loss) Per Common Share
Continuing Operations   |  | $                    | 0.38   |      |  | $    | (0.89  | )    |  | $    | 0.40   |  |  | $ | (0.42  | ) |  | $ | (1.52   | )
|Earnings/(Loss) Per Common
Share Discontinued Operations |  |                      |       |      |  |      |       |      |  |      |       |  |  |   |       |   |  |   | (0.05   | )
|                                                         |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  
|Earnings/(Loss) Per Common Share                         |  | $                    | 0.38   |      |  | $    | (0.89  | )    |  | $    | 0.40   |  |  | $ | (0.42  | ) |  | $ | (1.57   | )
|                                                         |  |                      |        |      |  |      |        |      |  |      |        |  |  |   |        |   |  |   |         |  

|                     |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|-------------------- |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                     |  | As of June 30,
|                     |  |               
|                     |  | 2002           |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                     |  |                |        |      |  |      |        |      |  |     
|Balance Sheet Data:  |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Total Assets         |  | $              | 30,939 |      |  | $    | 27,772 |      |  | $    | 39,235 |  |  | $ | 48,713 |  |  | $ | 64,358 | 
|Working Capital      |  | $              | 14,991 |      |  | $    | 10,391 |      |  | $    | 17,921 |  |  | $ | 13,063 |  |  | $ | 11,385 | 
|Long-Term Debt       |  | $              |       |      |  | $    |       |      |  | $    |       |  |  | $ |       |  |  | $ |       | 
|Stockholders Equity |  | $              | 26,785 |      |  | $    | 23,772 |      |  | $    | 33,689 |  |  | $ | 30,087 |  |  | $ | 33,437 | 

Page 8 of 54



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As a result of the Companys sale of its vending operation during fiscal year
1998, the vending operation was accounted for as a discontinued operation
beginning in fiscal year 1997.

Item 7. Managements Discussion and Analysis of Financial Conditions and Results of Operations

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
Section 27A of the Securities Act of 1933, as amended. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words believes, anticipates, plans, expects, and similar expressions
are intended to identify forward-looking statements. There are a number of
factors that could cause the Companys actual results to differ materially from
those indicated by such forward-looking statements. These factors include,
without limitation, those set forth below under the caption Certain Factors
That May Affect Future Operating Results.

(a) (1) and (2) Liquidity and Capital Resources

During both fiscal years 2001 and 2002, the Companys principal source of cash
was from operations. The principal use of these funds was to pay down the
revolving Credit Facility and fund additions to property, plant and equipment.
In addition, during fiscal year 2001, the Company expended $2.9 million to
purchase 727,000 shares of Treasury Stock. The Company did not purchase any
shares in fiscal year 2002.

Cash provided by operating activities was $6.8 million in fiscal year 2002
compared to $627,000 for fiscal year 2001 and $8.2 million for fiscal year
2000. Fiscal year 2002 operating cash flow reflects the Companys net income
of $3.0 million and accounts receivables collections due to significant
shipments of EST-2000 and Javelin systems during the year.

Cash used for investing activities, primarily in additions to property, plant
and equipment, was $411,000 in fiscal year 2002 compared to $381,000 in fiscal
year 2001 and $893,000 in fiscal year 2000.

The Companys financing activities used $111,000 of cash in fiscal year 2002
compared to $2.6 million in fiscal year 2001 and $6.4 million in fiscal year
2000. In fiscal year 2001, $2.9 million was utilized to repurchase treasury
stock.

On June 24, 1999, the Company entered into a revolving credit facility (Credit
Facility) totaling $12.5 million and expiring on June 24, 2003 with Mellon
Bank, N. A., which was subsequently purchased by LaSalle Business Credit.
Proceeds from the Credit Facility were
used to pay the outstanding balance under the Companys loan facility with its
previous primary
lender. There was no outstanding balance under the Credit Facility at June 30,
2002.

The Company was not in compliance with certain financial covenants required
under the Credit Facility during fiscal year 2001. On November 5, 2001, the
Credit Facility was amended whereby the Company paid a fee of $40,000 to
resolve the prior non-compliance issues; adjust the future financial covenant
requirements; reduce the line of credit from $12.5 million to $5.0 million; and
revise the fee structure. As of June 30, 2002, the Company is in compliance
with the amended covenants. Based on the fact that there have been no
borrowings since July 13, 2001, a cash balance of $6,280,000 at June 30, 2002,
and the positive cash projections for fiscal year 2003, management believes
that operational cash requirements will continue to be funded internally.

Page 9 of 54



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##### 



During fiscal year 2003, the Company anticipates spending approximately
$400,000 for new machinery and equipment, and to continue to refurbish the
Orlando, Florida facility. In order to improve productivity and efficiency,
actions are underway to consolidate the Company into approximately 90,000
square feet. This consolidation also includes outsourcing of certain
activities and the disposition of excess equipment and machinery, the majority
of which is fully depreciated. In addition, the Company is disposing of excess
and obsolete raw materials inventory which is fully reserved.

During fiscal year 2001, the Company reduced its operating costs by eliminating
105 employees or 35% of the total number of employees. Termination benefits
associated with the reductions were approximately $1,418,000. Annual
compensation savings associated with these actions were $4,300,000. All
employee termination benefits related to the fiscal year 2001 reductions in
workforce were paid by October 31, 2001.

In September 2001, the Company reduced its operating costs by eliminating
approximately 35 employees or 25% of the total remaining employees. Annual
compensation savings associated with these actions were approximately
$2,200,000. The employee termination benefits associated with the reductions
were approximately $272,000 of which $253,000 was recorded to cost of sales and
$19,000 recorded to selling, general and administrative expenses. All
termination benefits related to the September 2001 reduction in workforce were
paid in fiscal year 2002.

In April 2002, the Company announced that Dr. James C. Garrett, President and
Chief Executive Officer, would leave the Company at the end of June 2002.
Severance costs of approximately $255,000, which includes one year of salary
and health benefits, were recorded in June 2002 and are included in Accrued
Expenses and Other. These costs will be paid during fiscal year 2003.

In July 2002, the Company further reduced its operating costs by eliminating 15
employees or 11% of the remaining employees. The employee termination benefits
associated with the reductions were approximately $197,000. Annual
compensation savings associated with theses actions were approximately
$1,200,000.

Managements plans to improve future profitability include: (1) a continuation
of both direct and indirect cost reduction initiatives and improvement of
operating performance, (2) an aggressive focus on obtaining follow-on awards
to existing business, and (3) the implementation of strategies to procure new
business.

Other than as stated above, the Company has no other material commitments for
capital expenditures. Management believes that with the funds available under
its projected cash flow, the Company will have sufficient resources to meet
planned operating commitments for the foreseeable future.

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On August 23, 2002, the Board of Directors approved a plan to repurchase up to
$1.5 million of common stock. Any repurchases will be made from time to time
in the open market or in negotiated transactions pursuant to the safe harbor
rules of the Securities and Exchange Commission. Repurchases will be effected
if and when management deems prudent. Approval to execute this plan must be
obtained from LaSalle Business Credit under the Companys Credit Facility prior
to initiating any purchases.

(3) Results of Operations

2002 Compared with 2001

Net sales increased $3.2 million (11%) in fiscal year 2002 compared to fiscal
year 2001. This increase is primarily due to revenues resulting from the $15.6
million Javelin Missile Field Tactical Trainer (FTT) award, which was announced
in October 2001.

Gross margin as a percentage of sales increased to 34% in fiscal year 2002
compared to 14% in fiscal year 2001. The higher margins are primarily a result
of improvement in gross margins due to performance efficiencies on several
programs including CCTT, Javelin FTT and Javelin BST. Overhead expenses were
also significantly reduced in fiscal year 2002 due to reductions in the
workforce and other cost reduction initiatives which took place in fiscal year
2001 and early fiscal year 2002.

Selling, general and administrative decreased $3.4 million (34%) in fiscal year
2002 compared to fiscal year 2001. This decrease is primarily a result of
decreased bid and proposal expenses and reductions in the workforce that took
place in fiscal year 2001. There were several major pursuits of long-term
programs in fiscal year 2001, which required significant investments.

Independent research and development (IR&D) expense increased $640,000 (67%) in
fiscal year 2002 compared to fiscal year 2001 primarily due to increased
research projects related to the EST 2000 product.

Deferred tax assets decreased $1.1 million (16%) in fiscal year 2002 compared to
fiscal year 2001 due primarily to increased tax deductions due to disposal of
excess and obsolete inventory. The tax valuation allowance was
decreased by the same amount. Due to uncertainty as to the ultimate
realization of these assets, the Company has provided a valuation
reserve against its deferred tax assets. Based on recent tax law changes, which extended
the carryback period for net operating losses and changed certain alternative
minimum tax liability rules, a net $216,000 tax benefit was recorded in fiscal
year 2002.

2001 Compared with 2000

Net sales decreased $12.1 million (30%) in fiscal year 2001 compared to fiscal
year 2000. This decrease is primarily due to the completion of the Javelin
Multi-Year 1, F-18, UK CATT and AGTS contracts and delays in the awards of the
Javelin Multi-Year 2 and EST Lot 2 contracts.

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Gross margin as a percentage of sales decreased to 14% in fiscal year 2001
compared to 33% in fiscal year 2000. The lower margins are primarily a result
of the completion of several high margin contracts in fiscal year 2000 and the
spreading of fixed costs over a smaller revenue base. In addition, the Company
incurred $1.4 million of severance costs in fiscal year 2001 and recorded
additional losses totaling $1.3 million related to completion of the EST system
development due to continuing technical issues.

Selling, general and administrative expense increased $791,000 (9%) in fiscal
year 2001 compared to fiscal year 2000. This increase is primarily a result of
increased bid and proposal, and marketing investments related to the pursuit of
new business and increased bad debt expense related to recording a reserve for
doubtful accounts for receivables associated with the former U.K. operation
totaling $657,000. See note 2 in the Notes to the Consolidated Financial
Statements. These increases were partially offset by decreases in SG&A
salaries and bonuses.

Independent research and development (IR&D) expense increased $581,000 (155%)
in fiscal year 2001 compared to fiscal year 2000 primarily due to research in
the area of new simulation technologies and products.

Interest expense decreased $383,000 (53%) in fiscal year 2001 compared to
fiscal year 2000. This decrease is primarily a result of improved cash flows
from operations that enabled the Company to maintain a positive cash balance
for the first five months of fiscal year 2001.

Deferred tax assets increased $2.7 million (60%) in fiscal year 2001 compared
to fiscal year 2000 due primarily to increased Federal Operating Loss
Carryforwards. The tax valuation allowance was increased by the same amount
due to uncertainty as to the ultimate realization of these assets.

Critical Accounting Policies

The Company considers that certain accounting policies are critical due to the
estimation process involved in each of them. The assumptions and judgement
utilized in developing these estimates are based on the information available
at the time including an assessment of the risks and uncertainties. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the periods presented. The significant accounting policies,
which the Company believes are the most critical to aid in fully understanding
and evaluating our reported financial results, include the following:

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Contract sales and anticipated profits are recognized using the
percentage of completion method measured by the ratio of costs incurred
to date to estimated total costs. The Company reevaluates the estimated
costs to complete on the entire contract on a quarterly basis. Any
revisions in estimated costs or contract value during the progress of the
work may affect the estimated gross margin percentage for the contract.
Estimated costs may be adjusted favorably or unfavorably based on
projected changes in areas such as labor efficiencies, material price
negotiations, supplier delivery schedules, design and development
progress and overhead rate projections. Changes in gross margin
percentages have the effect of adjusting the current period earnings
applicable to performance in prior periods.

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| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Anticipated losses on contracts in progress are recorded in the period in
which the losses are identified. Claims would be included as a component
of contract value for purposes of revenue recognition at such time as the
amount is reasonably determinable and probable.                                                                                                                                                                                                                                                                           
|
| |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Company values raw materials at the lower of average cost or market.
On a quarterly basis, inventory items are evaluated to identify
slow-moving, excess or obsolete parts. An assessment of potential use on
future programs including spare parts orders, repairs and warranty work,
is the basis for the establishment of a reserve for excess and obsolete
inventory. Potential usage assessments may be impacted favorably or
unfavorably by changes in the Companys projected contracts, parts
obsolescence and level of spares and repairs.
|
| |  | Deferred Tax Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company has provided a full valuation reserve against its deferred
tax assets. In the future, if sufficient evidence of the Companys
ability to generate future taxable income becomes apparent, the Company
may reduce its valuation allowances resulting in income tax benefits in
the Companys consolidated statement of operations. Management evaluates
the realizability of the deferred tax assets quarterly and assesses the
valuation allowance quarterly.                                                                              

Certain Factors That May Affect Future Operating Results

The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from
time to time. All forward-looking statements included in this Form 10-K are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update such forward-looking statements.

A number of uncertainties exist that could affect the Companys future
operating results including, without limitation, general economic conditions,
changes in government spending, borrowing availability under and compliance
with the Credit Facility, amending the covenants to the Credit Facility,
cancellation of weapons programs, delays in contract awards, delays in the
acceptance process of contract deliverables, the Companys continued ability to
develop and introduce products, the introduction of new products by
competitors, pricing practices of competitors, the cost and availability of
parts and the Companys ability to control costs.

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To date, a substantial portion of the Companys revenues have been
attributable to long-term contracts with various government agencies. As a
result, any factor adversely affecting procurement of long-term government
contracts could have a material adverse effect on the Companys financial
condition and results of operations.

Because of these and other factors, past financial performance should not be
considered an indication of future performance. The Companys future
quarterly operating results may vary significantly. Investors should not use
historical trends to anticipate future results and should
be aware that the trading price of the Companys Common Stock may be subject
to wide fluctuations in response to quarterly variations in operating results
and other factors, including those discussed above.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company has a variable rate revolving credit facility and, as such, has
exposure to interest rate fluctuations. Under current market conditions, the
impact of an increase or decrease in the prevailing interest rates would not
materially effect the Companys consolidated financial position or results of
operations. As of June 30, 2002, there was no outstanding balance under the
Credit Facility.

Page 14 of 54



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Item 8. Financial Statements and Supplementary Data

Index to Consolidated Financial Statements

|                                                                                                 |  |         |       | 
|------------------------------------------------------------------------------------------------ |  | ------- | ----- | 
|                                                                                                 |  | Page(s)
|                                                                                                 |  |        
|Report of Independent Certified Public Accountants                                               |  |         | 16    | 
|                                                                                                
|Consolidated Statements of Operations for the Years
Ended June 30, 2002, 2001 and 2000           |  |         | 17    | 
|                                                                                                
|Consolidated Balance Sheets as of June 30, 2002 and 2001                                         |  |         | 18    | 
|                                                                                                
|Consolidated Statements of Stockholders Equity
for the Years Ended June 30, 2002, 2001 and 2000 |  |         | 19    | 
|                                                                                                
|Consolidated Statements of Cash Flows for the Years
Ended June 30, 2002, 2001 and 2000           |  |         | 20-21 | 
|                                                                                                
|Notes to Consolidated Financial Statements                                                       |  |         | 22-39 | 
|                                                                                                
|Part
III and IV, including exhibits                                                              |  |         | 40-44 | 
|                                                                                                
|Schedule II-Valuation and Qualifying Accounts
For the Years Ended June 30, 2002, 2001 and 2000   |  |         | 45    | 
|                                                                                                
|Signatures                                                                                       |  |         | 46    | 
|                                                                                                
|Consultant Agreement                                                                             |  |         | 47-48 | 
|                                                                                                
|Consent
of Independent Certified Public Accountants                                              |  |         | 49    | 
|                                                                                                
|Certifications                                                                                   |  |         | 50-53 | 
|                                                                                                
|Corporate
Directory                                                                              |  |         | 54    | 

Page 15 of 54



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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders and
the Board of Directors of
ECC International Corp.

In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of ECC
International Corp. and its Subsidiaries (the Company) at June 30, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 2002 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Companys management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

/s/ PRICEWATERHOUSECOOPERS LLP

PricewaterhouseCoopers LLP
Orlando, Florida
August 9, 2002

Page 16 of 54



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 2002, 2001 and 2000
(In Thousands, Except Per Share Data)

---

|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |       |       |  
|---------------------------------------------------------------- | ------------------------------------ | ---------------------------- | ------ | ----- | ----- | ---- | ------ | ----- | ------ | - | ------ | ----- | ----- | -
|                                                                 |                                      |                              |        | 2002  |       | 2001 |        | 2000 
|                                                                 |                                      |                              |        |       |       |      |        |      
|Net Sales                                                        |                                      | $                            | 31,961 |       |       | $    | 28,736 |       |        | $ | 40,876 |      
|Cost of Sales                                                    |                                      |                              | 21,129 |       |       |      | 24,735 |       |        |   | 27,386 |      
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|Gross Profit                                                     |                                      |                              | 10,832 |       |       |      | 4,001  |       |        |   | 13,490 |      
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|Expense:                                                         |                                      |                              |        |       |       |      |        |       |        |   |        |      
|                                                                 | Selling, General & Administrative    |                              |        | 6,516 |       |      |        | 9,920 |        |   |        | 9,129 |      
|                                                                 | Independent Research and Development |                              |        | 1,597 |       |      |        | 957   |        |   |        | 376   |      
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|                                                                 |                                      | Total Expense                |        |       | 8,113 |      |        |       | 10,877 |   |        |       | 9,505 |  
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|Operating Income/(Loss)                                          |                                      |                              | 2,719  |       |       |      | (6,876 | )     |        |   | 3,985  |      
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|Other Income/(Expense):                                          |                                      |                              |        |       |       |      |        |       |        |   |        |      
|                                                                 | Interest Income                      |                              |        | 191   |       |      |        | 62    |        |   |        | 151   |      
|                                                                 | Interest Expense                     |                              |        | (154  | )     |      |        | (344  | )      |   |        | (727  | )    
|                                                                 | Other-Net                            |                              |        | (13   | )     |      |        | 179   |        |   |        | (20   | )    
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|                                                                 |                                      | Total Other Income/(Expense) |        |       | 24    |      |        |       | (103   | ) |        |       | (596  | )
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|Income/(Loss) Before Income Taxes                                |                                      |                              | 2,743  |       |       |      | (6,979 | )     |        |   | 3,389  |      
|Provision/(Benefit) for Income Taxes                             |                                      |                              | (216   | )     |       |      | 160    |       |        |   |       |      
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|Net Income/(Loss)                                                |                                      | $                            | 2,959  |       |       | $    | (7,139 | )     |        | $ | 3,389  |      
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      
|Net
Income/(Loss) Per Common Share
Basic and Assuming Dilution: |                                      | $                            | 0.38   |       |       | $    | (0.89  | )     |        | $ | 0.40   |      
|                                                                 |                                      |                              |        |       |       |      |        |       |        |   |        |      

See accompanying notes to consolidated financial statements

Page 17 of 54



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2002 and 2001
(In Thousands, Except Share and Per Share Data)

---

|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |        |       |   |        | 
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | --------------------------- | ------------------------------------------ | ----- | ---- | ------ | ------ | ----- | - | ------ | 
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       | 2002 |        | 2001  
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|ASSETS                        |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              | Current:                                                                                                                                                                        |                                                                            |                             |                                            |       |      |        |        |      
|                              |                                                                                                                                                                                 | Cash                                                                       |                             | $                                          | 6,280 |      |        | $      | 39    |  
|                              |                                                                                                                                                                                 | Accounts Receivable                                                        |                             |                                            | 2,152 |      |        |        | 4,521 |  
|                              |                                                                                                                                                                                 | Cost and Estimated Earnings in Excess of
Billings on Uncompleted Contracts |                             |                                            | 9,458 |      |        |        | 8,283 |  
|                              |                                                                                                                                                                                 | Inventories                                                                |                             |                                            | 920   |      |        |        | 1,154 |  
|                              |                                                                                                                                                                                 | Prepaid Expenses and Other                                                 |                             |                                            | 274   |      |        |        | 307   |  
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              |                                                                                                                                                                                 |                                                                            |                             | Total Current Assets                       |       |      | 19,084 |        |       |   | 14,304 | 
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              | Property, Plant and Equipment, Net                                                                                                                                              |                                                                            |                             | 11,823                                     |       |      |        | 13,352 |      
|                              | Other Assets                                                                                                                                                                    |                                                                            |                             | 32                                         |       |      |        | 116    |      
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              |                                                                                                                                                                                 |                                                                            |                             | Total Assets                               |       | $    | 30,939 |        |       | $ | 27,772 | 
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|LIABILITIES                   |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              | Current:                                                                                                                                                                        |                                                                            |                             |                                            |       |      |        |        |      
|                              |                                                                                                                                                                                 | Current Portion of Long-Term Debt                                          |                             | $                                          |      |      |        | $      | 157   |  
|                              |                                                                                                                                                                                 | Accounts Payable                                                           |                             |                                            | 2,121 |      |        |        | 1,955 |  
|                              |                                                                                                                                                                                 | Accrued Expenses and Other                                                 |                             |                                            | 1,972 |      |        |        | 1,801 |  
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              |                                                                                                                                                                                 |                                                                            |                             | Total Current Liabilities                  |       |      | 4,093  |        |       |   | 3,913  | 
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              | Deferred Income Taxes                                                                                                                                                           |                                                                            |                             | 61                                         |       |      |        | 61     |      
|                              | Other Long-Term Liabilities                                                                                                                                                     |                                                                            |                             |                                           |       |      |        | 26     |      
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              |                                                                                                                                                                                 |                                                                            |                             | Total Liabilities                          |       |      | 4,154  |        |       |   | 4,000  | 
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|COMMITMENTS AND CONTINGENCIES |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|STOCKHOLDERS EQUITY:         |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              | Preferred Stock, $0.10 par; 1,000,000 shares authorized;                                                                                                                        |                                                                            |                             |                                            |       |      |        |        |      
|                              |                                                                                                                                                                                 |                                                                            | None issued and outstanding |                                            |       |     |        |        |       |  |       
|                              | Common Stock, $0.10 par; 20,000,000 shares authorized;
8,577,608 shares issued and 7,850,608 outstanding in 2002, and
8,557,285 shares issued and 7,830,285 outstanding in 2001 |                                                                            |                             | 858                                        |       |      |        | 856    |      
|                              | Note Receivable from Stockholder                                                                                                                                                |                                                                            |                             | (168                                       | )     |      |        | (168   | )    
|                              | Capital in Excess of Par                                                                                                                                                        |                                                                            |                             | 25,493                                     |       |      |        | 25,441 |      
|                              | Retained Earnings                                                                                                                                                               |                                                                            |                             | 3,511                                      |       |      |        | 552    |      
|                              | Treasury Stock at cost, 727,000 shares                                                                                                                                          |                                                                            |                             | (2,909                                     | )     |      |        | (2,909 | )    
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              |                                                                                                                                                                                 |                                                                            |                             | Total Stockholders Equity                 |       |      | 26,785 |        |       |   | 23,772 | 
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       
|                              |                                                                                                                                                                                 |                                                                            |                             | Total Liabilities and Stockholders Equity |       | $    | 30,939 |        |       | $ | 27,772 | 
|                              |                                                                                                                                                                                 |                                                                            |                             |                                            |       |      |        |       

See accompanying notes to consolidated financial statements

Page 18 of 54



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the Years Ended June 30, 2002, 2001 and 2000
(In Thousands, Except Share Data)

---

|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |     | 
|-------------------------------------------- | --------------------------------------------------- | - | ------ | - | -------- | - | --------- | - | -------- | - | ------------ | --- | ------------- | - | ------ | - | ---------- | - | ----- | - |  | - | ------ | --- | 
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   | Note  |   |  |   |       
|                                             |                                                     |   |        |   |          |   |           |   |          |   | Capital      |     |               |   |        |   | Receivable |   | Total
|                                             |                                                     |   | Common |   | Treasury |   | In Excess |   | Retained |   | From         |     | Stockholders'
|                                             |                                                     |   | Stock  |   | Stock    |   | of Par    |   | Earnings |   | Stockholders |     | Equity       
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |              
|Balance as of June 30, 1999                  |                                                     | $ | 841    |   |          | $ |          |   |          | $ | 25,005       |     |               | $ | 4,387  |   |            | $ | (146  | ) |  | $ | 30,087 |    
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|Net Income/(Loss)                            |                                                     |   |       |   |          |   |          |   |          |   |             |     |               |   | 3,389  |   |            |   |      |   |  |   | 3,389  |    
|Stock Issued:                                |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|                                             | Employee Stock Purchase
Plan-38,291 Shares          |   |        | 4 |          |   |           |  |          |   |              | 112 |               |   |        |  |            |   |       |  |  |   |        | 116 | 
|                                             | Exercise of Options-3,400 Shares                    |   |        |  |          |   |           |  |          |   |              | 7   |               |   |        |  |            |   |       |  |  |   |        | 7   | 
|                                             | Issuance of Common Stock to
Directors-27,211 Shares |   |        | 3 |          |   |           |  |          |   |              | 87  |               |   |        |  |            |   |       |  |  |   |        | 90  | 
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|Balance as of June 30, 2000                  |                                                     |   | 848    |   |          |   |          |   |          |   | 25,211       |     |               |   | 7,776  |   |            |   | (146  | ) |  |   | 33,689 |    
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|Net Income/(Loss)                            |                                                     |   |       |   |          |   |          |   |          |   |             |     |               |   | (7,139 | ) |            |   |      |   |  |   | (7,139 | )  
|Stock Issued:                                |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|                                             | Employee Stock Purchase
Plan-17,5291 Shares         |   |        | 2 |          |   |           |  |          |   |              | 49  |               |   |        |  |            |   |       |  |  |   |        | 51  | 
|                                             | Exercise of Options-54,337 Shares                   |   |        | 6 |          |   |           |  |          |   |              | 166 |               |   |        |  |            |   |       |  |  |   |        | 172 | 
|                                             | Issuance of Common Stock to
Directors-4,354 Shares  |   |        |  |          |   |           |  |          |   |              | 15  |               |   |        |  |            |   |       |  |  |   |        | 15  | 
|Renegotiation of Note
Recvd from Stockholder |                                                     |   |       |   |          |   |          |   |          |   |             |     |               |   |       |   |            |   | (22   | ) |  |   | (22    | )  
|Purchase of Stockholder Rights               |                                                     |   |       |   |          |   |          |   |          |   |             |     |               |   | (85    | ) |            |   |      |   |  |   | (85    | )  
|Treasury Stock 727,000 shares                |                                                     |   |       |   |          |   | (2,909    | ) |          |   |             |     |               |   |       |   |            |   |      |   |  |   | (2,909 | )  
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|Balance as of June 30, 2001                  |                                                     |   | 856    |   |          |   | (2,909    | ) |          |   | 25,441       |     |               |   | 552    |   |            |   | (168  | ) |  |   | 23,772 |    
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|Net Income/(Loss)                            |                                                     |   |       |   |          |   |          |   |          |   |             |     |               |   | 2,959  |   |            |   |      |   |  |   | 2,959  |    
|Stock Issued:                                |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|                                             | Employee Stock Purchase
Plan-7,656 Shares           |   |        | 1 |          |   |           |  |          |   |              | 18  |               |   |        |  |            |   |       |  |  |   |        | 19  | 
|                                             | Exercise of Options-10,000 Shares                   |   |        | 1 |          |   |           |  |          |   |              | 26  |               |   |        |  |            |   |       |  |  |   |        | 27  | 
|                                             | Issuance of Common Stock to
Directors-2,667 Shares  |   |        |  |          |   |           |  |          |   |              | 8   |               |   |        |  |            |   |       |  |  |   |        | 8   | 
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    
|Balance as of June 30, 2002                  |                                                     | $ | 858    |   |          | $ | (2,909    | ) |          | $ | 25,493       |     |               | $ | 3,511  |   |            | $ | (168  | ) |  | $ | 26,785 |    
|                                             |                                                     |   |        |   |          |   |           |   |          |   |              |     |               |   |        |   |            |   |       |   |  |   |        |    

Common shares outstanding at June 30, 2002, 2001 and 2000
were 7,850,608, 7,830,285 and 8,481,067 shares, respectively.

See accompanying notes to consolidated financial statements

Page 19 of 54



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2002, 2001 and 2000
(In Thousands)

---

|                                                                                             |                                                                            |                                            |       |        |       |      |        |        |       |   |       |        |       |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------ | ----- | ------ | ----- | ---- | ------ | ------ | ----- | - | ----- | ------ | ----- | -
|                                                                                             |                                                                            |                                            |       | 2002   |       | 2001 |        | 2000  
|                                                                                             |                                                                            |                                            |       |        |       |      |        |       
|Cash Flows From Operating Activities:                                                        |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       
|Net Income/(Loss)                                                                            |                                                                            | $                                          | 2,959 |        |       | $    | (7,139 | )      |       | $ | 3,389 |       
|Adjustments to Reconcile Net Income to Net Cash
Provided by/(Used For) Operating Activities: |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       
|                                                                                             |                                                                            | Depreciation                               |       |        | 1,902 |      |        |        | 2,645 |   |       |        | 3,919 |  
|                                                                                             |                                                                            | Amortization                               |       |        | 96    |      |        |        | 101   |   |       |        | 421   |  
|                                                                                             |                                                                            | Loss/(Gain) on Sale of Assets              |       |        | 38    |      |        |        | (140  | ) |       |        | 25    |  
|Changes in Certain Assets and Liabilities:                                                   |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       
|                                                                                             | Accounts Receivable                                                        |                                            |       | 2,369  |       |      |        | 2,816  |       |   |       | (2,621 | )    
|                                                                                             | Cost and Estimated Earnings in Excess of
Billings on Uncompleted Contracts |                                            |       | (1,175 | )     |      |        | 2,172  |       |   |       | 8,039  |      
|                                                                                             | Inventories                                                                |                                            |       | 234    |       |      |        | 1,405  |       |   |       | 1,752  |      
|                                                                                             | Prepaid Expenses and Other                                                 |                                            |       | 21     |       |      |        | 436    |       |   |       | (329   | )    
|                                                                                             | Accounts Payable                                                           |                                            |       | 166    |       |      |        | 517    |       |   |       | (1,479 | )    
|                                                                                             | Accrued Expenses and Other                                                 |                                            |       | 153    |       |      |        | (2,186 | )     |   |       | (4,914 | )    
|                                                                                             |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       
|Net Cash Provided By Operating Activities                                                    |                                                                            |                                            | 6,763 |        |       |      | 627    |        |       |   | 8,202 |       
|                                                                                             |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       
|Cash Flows From Investing Activities:                                                        |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       
|                                                                                             |                                                                            | Proceeds From Sale of Assets               |       |        | 8     |      |        |        | 154   |   |       |        | 18    |  
|                                                                                             |                                                                            | Additions to Property, Plant and Equipment |       |        | (419  | )    |        |        | (535  | ) |       |        | (911  | )
|                                                                                             |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       
|Net Cash Used In Investing Activities                                                        |                                                                            | $                                          | (411  | )      |       | $    | (381   | )      |       | $ | (893  | )     
|                                                                                             |                                                                            |                                            |       |        |       |      |        |        |       |   |       |       

Continued...

Page 20 of 54



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##### 



ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2002, 2001 and 2000
(In Thousands)

---

|                                                        |                                                              |   |       |        |      |   |        |         |   |   |        |        |  
|------------------------------------------------------- | ------------------------------------------------------------ | - | ----- | ------ | ---- | - | ------ | ------- | - | - | ------ | ------ | -
|                                                        |                                                              |   | 2002  |        | 2001 |   | 2000  
|                                                        |                                                              |   |       |        |      |   |       
|Cash Flows From Financing Activities:                   |                                                              |   |       |        |      |   |        |         |   |   |        |       
|                                                        | Proceeds From Issuance of Common Stock and
Options Exercised |   | $     | 46     |      |   | $      | 223     |   |   | $      | 123    |  
|                                                        | Purchase of Treasury Stock                                   |   |       |       |      |   |        | (2,909  | ) |   |        |       |  
|                                                        | Purchase of Stockholder Rights                               |   |       |       |      |   |        | (85     | ) |   |        |       |  
|                                                        | Debt Issue Costs for Revolving Credit Facility               |   |       |       |      |   |        |        |   |   |        | (87    | )
|                                                        | Net Repayments Under Revolving Credit Facility               |   |       | (5,030 | )    |   |        | (18,800 | ) |   |        | (6,424 | )
|                                                        | Net Borrowings Under Revolving Credit Facility               |   |       | 4,873  |      |   |        | 18,957  |   |   |        |       |  
|                                                        |                                                              |   |       |        |      |   |        |         |   |   |        |       
|Net Cash Used In Financing Activities                   |                                                              |   | (111  | )      |      |   | (2,614 | )       |   |   | (6,388 | )     
|                                                        |                                                              |   |       |        |      |   |        |         |   |   |        |       
|Net Increase/(Decrease) in Cash                         |                                                              |   | 6,241 |        |      |   | (2,367 | )       |   |   | 921    |       
|Cash at Beginning of the Year                           |                                                              |   | 39    |        |      |   | 2,406  |         |   |   | 1,485  |       
|                                                        |                                                              |   |       |        |      |   |        |         |   |   |        |       
|Cash at End of the Year                                 |                                                              | $ | 6,280 |        |      | $ | 39     |         |   | $ | 2,406  |       
|                                                        |                                                              |   |       |        |      |   |        |         |   |   |        |       
|Supplemental Disclosures of Cash Flow Information:      |                                                              |   |       |        |      |   |        |         |   |   |        |       
|                                                        | Cash Paid During the Year for Interest                       |   | $     | 167    |      |   | $      | 329     |   |   | $      | 720    |  
|                                                       
|Supplemental Schedule of Non-Cash Financing Activities: |                                                              |   |       |        |      |   |        |         |   |   |        |       
|                                                        | Issuance of Director Equity Compensation                     |   | $     | 8      |      |   | $      | 15      |   |   | $      | 90     |  
|                                                        | Purchase of Fixed Assets Through Capital Leases              |   | $     |       |      |   | $      |        |   |   | $      | 254    |  

See accompanying notes to consolidated financial statements

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##### 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Significant Accounting Policies

Consolidation

The consolidated financial statements include the accounts of ECC International
Corp. and its wholly owned subsidiaries (collectively, the Company).
Intercompany transactions have been eliminated in consolidation.

Revenue and Cost Recognition

Contract sales and anticipated profits are recognized using the percentage of
completion method, measured by the ratio of costs incurred to date to estimated
total costs. Since many contracts extend over a long period of time, any
revisions in estimated costs or contract value during the progress of work have
the effect of adjusting the current period earnings applicable to performance
in prior periods.

Contract costs include all direct labor and material costs and an allocation of
indirect costs, such as indirect labor, supplies and depreciation.

Anticipated losses on contracts in progress are recorded in the period in which
the losses are identified. Claims are included as a component of contract
value for purposes of revenue recognition at such time as the amount is
reasonably determinable and probable.

Unbilled costs and estimated earnings consists principally of contract revenue
related to long term contracts which has been recognized for accounting
purposes but is not yet billable to the customer. Substantially all of these
amounts will be billed in the following fiscal year.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.

Inventories

Work in process inventory is valued using the specific identification cost
method, but not in excess of net realizable value. Raw materials are valued at
the lower of average cost or market.

Cash and Cash Equivalents

Cash equivalents are comprised of highly liquid financial instruments with
maturities of three months or less when purchased.

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Property, Plant and Equipment

Property, Plant and Equipment is stated at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the respective
assets and ranges from 10 to 30 years for buildings and building improvements,
3 to 10 years for machinery and equipment, and 5 years for demonstration and
test equipment.

The cost of maintenance and repairs is charged to expense as incurred.
Renewals and betterments are capitalized. Applicable asset and accumulated
depreciation accounts are reduced for a sale or other disposition and the
resulting gain or loss is included in the Consolidated Statements of
Operations.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when events or circumstances
indicate that the carrying amount of the asset may not be recoverable. The
estimated future undiscounted cash flows associated with the asset are compared
to the assets carrying value to determine if a write-down is required. If
impairment is indicated, the carrying amount of the asset is reduced to its
fair value.

Income Taxes

The Company utilizes the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized
by applying enacted statutory tax rates to temporary differences between the
tax basis and financial statement carrying value of the Companys assets and
liabilities. A valuation allowance is provided where it is more likely than
not that deferred tax assets will not be realized.

Critical Accounting Policies

The Company considers that certain accounting policies are critical due to the
estimation process involved in each of them. The assumptions and judgement
utilized in developing these estimates are based on the information available
at the time including an assessment of the risks and uncertainties. These
estimates and assumptions affect the reported amounts of assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the periods presented. The significant accounting policies,
which the Company believes are the most critical to aid in fully understanding
and evaluating our reported financial results, include the following:

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Contract sales and anticipated profits are recognized using the
percentage of completion method measured by the ratio of costs incurred
to date to estimated total costs. The Company reevaluates the estimated
costs to complete on the entire contract on a quarterly basis. Any
revisions in estimated costs or contract value during the progress of the
work may affect the estimated gross margin percentage for the contract.
Estimated costs may be adjusted favorably or unfavorably based on
projected changes in areas such as labor efficiencies, material price
negotiations, supplier delivery schedules, design and development
progress and overhead rate projections. Changes in gross margin
percentages have the effect of adjusting the current period earnings
applicable to performance in prior periods.

Page 23 of 54



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##### 



| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Anticipated losses on contracts in progress are recorded in the period in
which the losses are identified. Claims would be included as a component
of contract value for purposes of revenue recognition at such time as the
amount is reasonably determinable and probable.                                                                                                                                                                                                                                                                           
|
| |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Company values raw materials at the lower of average cost or market.
On a quarterly basis, inventory items are evaluated to identify
slow-moving, excess or obsolete parts. An assessment of potential use on
future programs including spare parts orders, repairs and warranty work,
is the basis for the establishment of a reserve for excess and obsolete
inventory. Potential usage assessments may be impacted favorably or
unfavorably by changes in the Companys projected contracts, parts
obsolescence and level of spares and repairs.
|
| |  | Deferred Tax Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company has provided a full valuation reserve against its deferred
tax assets. In the future, if sufficient evidence of the Companys
ability to generate future taxable income becomes apparent, the Company
may reduce its valuation allowances resulting in income tax benefits in
the Companys consolidated statement of operations. Management evaluates
the realizability of the deferred tax assets quarterly and assesses the
valuation allowance quarterly.                                                                              

Research and Development Costs

Company sponsored research and development costs are included as part of the
general and administrative costs and were approximately $1,597,000, $957,000
and $376,000 during fiscal years ended June 30, 2002, 2001 and 2000,
respectively. These activities include manufacturing, engineering and software
research and development relating to the development of new products and
product enhancements. Customer sponsored research and development costs
incurred pursuant to contracts are accounted for as contract costs. There were
no customer sponsored research and development costs for fiscal years 2002,
2001 and 2000.

Treasury Stock

Repurchased shares of the Companys common stock are included in treasury stock
at cost.

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##### 



Stock-Based Compensation

The Company measures compensation expense for employee and director stock
options as the aggregate difference between the market and exercise prices of
the options on the date that both
the number of shares the grantee is entitled to receive and the purchase price
are known. Pro-
forma information relating to the fair value of stock-based compensation is
presented in note 11 in the Notes to the Consolidated Financial Statements.

Presentation

Certain amounts in fiscal year 2001 have been reclassified to conform to the
fiscal year 2002 Financial Statement presentation.

Earnings/(Loss) Per Share

Basic earnings/(loss) per common share is computed by dividing net
income/(loss) available to common shareholders by the weighted-average number
of common shares outstanding during the period. Diluted earnings/(loss) per
share is computed by dividing net income/(loss) available to common
shareholders by the weighted-average number of common shares outstanding during
the period adjusted for the number of shares that would have been outstanding
if dilutive potential common shares resulting from the exercise of stock
options had been issued. The diluted earnings/(loss) per share does not assume
the exercise of stock options that would have an antidilutive effect on
earnings/(loss) per share.

The Companys dilutive potential common shares consists of stock options. In
calculating diluted earnings per share, approximately 17,000 and 49,000
dilutive potential common shares were included in fiscal year 2002 and 2000,
respectively. The number of potentially dilutive common shares in 2001 was
60,000; however, they were not included in computing earnings per share since
they would have had an antidilutive effect. The number of shares used in
computing earnings per share is as follows:

|         |  |                      |           |      |  |      |           |  |  |  |           | 
|-------- |  | -------------------- | --------- | ---- |  | ---- | --------- |  |  |  | --------- | 
|         |  | Years Ended June 30,
|         |  |                     
|         |  | 2002                 |           | 2001 |  | 2000
|         |  |                      |           |      |  |     
|Basic    |  |                      | 7,835,000 |      |  |      | 8,025,000 |  |  |  | 8,436,000 | 
|Dilutive |  |                      | 7,852,000 |      |  |      | 8,025,000 |  |  |  | 8,485,000 | 

New Accounting Pronouncements

In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Obligations Associated
with the Retirement of Long-Lived Assets (SFAS 143), and Statement of Financial
Accounting Standards No. 144, Asset Impairment and Disposal Issues (SFAS 144).
SFAS 143 is effective for fiscal years beginning after June 15, 2002. SFAS 144
requires that long-lived assets that are to be disposed of by sale be measured
at the lower of book value of fair value less cost to sell. SFAS 144 supercedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of and amends Accounting Principles Board
Opinion No. 30 (APB 30) Reporting Results of Operations Reporting the Effects
of Disposal of a Segment of a Business. SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The Company does not expect a significant
impact on future financial results as a result of adopting these standards.

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FAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections,was issued in April 2002. This
newly issued standard rescinds FAS 4, Reporting Gains and Losses from
Extinguishment of Debt-an amendment of APB Opinion No. 30,which required all
gains and losses from the extinguishment of debt to be aggregated and, if
material, classified as an extraordinary item, net of related income tax
effect. As a result, the criteria set forth by APB Opinion 30 will now be used
to classify those gains and losses. FAS 145 also amends FAS 13 to require that
certain lease modifications that have economic effects similar to
sale-leaseback transactions be accounted for in the same manner as
sale-leaseback transactions. In addition, FAS 145 amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings or describe their applicability under changed conditions. For the
provisions related to the rescission of FAS 4, FAS 145 is effective for the
Company beginning in fiscal year 2004. The remaining provisions of FAS 145 are
effective for the Company in fiscal year 2003. The Company does not expect the
adoption of FAS 145 to have a material impact on its consolidated financial
statements.

FAS 146, Accounting for Costs Associated with Exit or Disposal Activities,was
issued in June 2002 and addresses financial accounting and reporting for costs
associated with exit or disposal activities. This standard requires recording
costs associated with exit or disposal activities at their fair market values
when a liability had been incurred. Under the previous guidance of Emerging
Issues Task Force Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring),certain exits costs were recorded upon
managements commitment to an exit plan. Adoption of this standard is
effective for exit or disposal activities that are initiated after December 31,
2002 with earlier application encouraged. The Company will adopt FAS 146
effective January 1, 2003 and does not expect the adoption to have a material
impact on its consolidated financial statements.

Note 2. Accounts Receivable

|                                     |       |   |                |       |      |   |       |       | 
|------------------------------------ | ----- | - | -------------- | ----- | ---- | - | ----- | ----- | 
|                                     |       |   | (In Thousands)
|                                     |       |   | 2002           |       | 2001
|                                     |       |   |                |       |     
|Contract Receivables, Billed Amounts |       | $ | 1,765          |       |      | $ | 4,200 |      
|Other                                |       |   | 387            |       |      |   | 321   |      
|                                     |       |   |                |       |      |   |       |      
|                                     | Total |   | $              | 2,152 |      |   | $     | 4,521 | 
|                                     |       |   |                |       |      |   |       |      

Contract receivables include amounts under long-term contracts and subcontracts
principally with the U.S. Government or its contractors.

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During the fourth quarter of fiscal year 2001, upon advice of legal counsel,
the Company recorded a reserve for doubtful accounts for $657,000 against the
collection of receivables related to the former U.K. operation. The U.K.
operation wind down was completed in May 1999 and there have been no
collections against these receivables as of June 30, 2001. There was no reserve
for doubtful accounts in fiscal year 2000. During the third quarter of fiscal
year 2002, the Company received notice that approximately $140,000, of the
outstanding receivables would be paid. This amount was included as income in
the third quarter of fiscal year 2002, and payment was received during the
fourth quarter of 2002. The remaining reserve for doubtful accounts related to
the U.K. operation wind down is approximately $517,000 as of June 30, 2002.

Note 3. Inventories

|                              |       |   |                |     |      |   |        |       | 
|----------------------------- | ----- | - | -------------- | --- | ---- | - | ------ | ----- | 
|                              |       |   | (In Thousands)
|                              |       |   | 2002           |     | 2001
|                              |       |   |                |     |     
|Work in Process               |       | $ | 187            |     |      | $ | 97     |      
|Raw Materials                 |       |   | 1,343          |     |      |   | 3,869  |      
|Reserve for Excess & Obsolete |       |   | (610           | )   |      |   | (2,812 | )    
|                              |       |   |                |     |      |   |        |      
|                              | Total |   | $              | 920 |      |   | $      | 1,154 | 
|                              |       |   |                |     |      |   |        |      

Work in Process Inventory is valued using the specific identification cost
method, but not in excess of net realizable value. Raw materials are valued at
the lower of average cost or market. The reserve for excess and obsolete
inventory is based on an analysis of the specific parts, which includes an
assessment of their potential use on future programs. Due to the
reconfiguration of the Company into a smaller area, the Company disposed of a
portion of its excess and obsolete raw materials inventory in fiscal year 2002,
which had been fully reserved in prior years.

Note 4. Property, Plant and Equipment

|                                 |       |   |                |        |      |   |         |        | 
|-------------------------------- | ----- | - | -------------- | ------ | ---- | - | ------- | ------ | 
|                                 |       |   | (In Thousands)
|                                 |       |   | 2002           |        | 2001
|                                 |       |   |                |        |     
|Land                             |       | $ | 2,216          |        |      | $ | 2,216   |       
|Buildings/Improvements           |       |   | 21,236         |        |      |   | 20,957  |       
|Machinery and Equipment          |       |   | 10,985         |        |      |   | 19,361  |       
|Demonstration and Test Equipment |       |   | 2,797          |        |      |   | 8,914   |       
|                                 |       |   |                |        |      |   |         |       
|                                 | Total |   |                | 37,234 |      |   |         | 51,448 | 
|Less Accumulated Depreciation    |       |   | (25,411        | )      |      |   | (38,096 | )     
|                                 |       |   |                |        |      |   |         |       
|                                 | Total |   | $              | 11,823 |      |   | $       | 13,352 | 
|                                 |       |   |                |        |      |   |         |       

The Company considers its facilities to be excessive for its present needs and
is in the process of attempting to sell the facilities to a third party and
implement a long-term leaseback of approximately 90,000 square feet. Actions
are underway to consolidate the Company into the smaller area which includes
outsourcing of certain activities and disposition of excess equipment and
machinery, the majority of which is fully depreciated.

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Repairs and maintenance expense for the fiscal years ended June 30, 2002, 2001
and 2000 were $530,000, $713,000 and $1,093,000, respectively.

Note 5. Accrued Expenses and Other

|                |       |   |                |       |      |   |     |       | 
|--------------- | ----- | - | -------------- | ----- | ---- | - | --- | ----- | 
|                |       |   | (In Thousands)
|                |       |   | 2002           |       | 2001
|                |       |   |                |       |     
|Compensation    |       | $ | 370            |       |      | $ | 278 |      
|Vacation        |       |   | 345            |       |      |   | 436 |      
|Incentive Plans |       |   | 573            |       |      |   |    |      
|Contract Losses |       |   | 196            |       |      |   | 281 |      
|Other           |       |   | 488            |       |      |   | 932 |      
|                |       |   |                |       |      |   |     |      
|                | Total |   | $              | 1,972 |      |   | $   | 1,927 | 
|                |       |   |                |       |      |   |     |      

Note 6. Employee Benefit Plans

The Company has a 401K plan that was established in fiscal year 1999 and covers
all employees. Employer contributions are based on a percentage of employee
contributions and certain other restrictions as defined in the plan document.
In addition, the Company may also make
discretionary contributions at the end of the plan year. Employer
contributions of approximately $196,000, $263,000 and $378,000 were expensed in
the fiscal years ended June 30, 2002, 2001 and 2000, respectively. The maximum
employer contribution was reduced from 3% to 1 1/2% effective September 1,
2002.

Note 7. Debt

On June 24, 1999, the Company entered into a revolving credit facility (Credit
Facility) totaling $12.5 million and expiring on June 24, 2003, with Mellon
Bank N.A., which was subsequently purchased by LaSalle Business Credit.
Proceeds from the Credit Facility were used to pay the outstanding balance
($6.8 million at June 24, 1999) under the Companys loan facility with its
previous primary lender. Borrowings are based on a formula of receivables and
property as defined in the Credit Facility. There was no outstanding balance
under the Credit Facility as of June 30, 2002.

Interest is payable monthly, in arrears, at a rate defined in the credit
facility (6.75% at June 30, 2002.) The Company is required to pay certain fees
on a quarterly basis as calculated by the bank. The unused line fee is equal
to .50% per annum of the average daily unused balance. The agreement includes
a letter of credit fee equal to .75% per annum and a standby letter of credit
fee equal to 1.5% per annum. There were no outstanding letters of credit at
June 30, 2002.

The Credit Facility includes certain covenants related to, among other things,
working capital, tangible net worth, net income, cash flow and capital
expenditures. In addition, the Company is not permitted to pay dividends and
substantially all of the assets of the Company are pledged as collateral for
the Credit Facility.

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The Company was not in compliance with certain financial covenants required
under the Credit Facility during fiscal year 2001. On November 5, 2001, the
Credit Facility was amended whereby the Company paid a fee of $40,000 to
resolve the prior non-compliance issues, adjust the future financial covenant
requirements, reduce the line of credit from $12.5 million to $5.0 million and
revise the fee structure. As of June 30, 2002, the Company is in compliance
with the amended covenants. Based on the positive cash balance since July 13,
2001, and the positive cash projections for fiscal year 2003, management
believes that operational cash requirements will continue to be funded
internally.

The Credit Facility includes a subjective acceleration clause as well as a
lockbox requirement under the control of the lender, whereby collections of
trade receivables are used to immediately reduce the balance of the Credit
Facility.

Note 8. Income Taxes

The continuing domestic component of income/(loss)
before income taxes for the fiscal years ended 2002, 2001 and 2000
is $2.7 million, $(7.0) million, and $3.4 million,
respectively.

The components of the benefit for income taxes are as follows for the
years ended June 30, (in thousands):

|          |          |                                      |      |      |      |      |     |      |     |   |   |   |   | 
|--------- | -------- | ------------------------------------ | ---- | ---- | ---- | ---- | --- | ---- | --- | - | - | - | - | 
|          |          |                                      |      | 2002 |      | 2001 |     | 2000
|          |          |                                      |      |      |      |      |     |     
|Current:  |          |                                      |      |      |      |      |     |      |     |   |   |  
|Federal   |          | $                                    |     |      |      | $    |    |      |     | $ |  |  
|State     |          |                                      |     |      |      |      |    |      |     |   |  |  
|          |          |                                      |      |      |      |      |     |      |     |   |   |  
|          | Subtotal |                                      |      |     |      |      |     |     |     |   |   |  |  
|          |          |                                      |      |      |      |      |     |      |     |   |   |  
|Deferred: |          |                                      |      |      |      |      |     |      |     |   |   |  
|Federal   |          |                                      | (216 | )    |      |      | 160 |      |     |   |  |  
|State     |          |                                      |     |      |      |      |    |      |     |   |  |  
|          |          |                                      |      |      |      |      |     |      |     |   |   |  
|          | Subtotal |                                      |      | (216 | )    |      |     | 160  |     |   |   |  |  
|          |          |                                      |      |      |      |      |     |      |     |   |   |  
|          |          | Provision/(Benefit) for Income Taxes |      | $    | (216 | )    |     | $    | 160 |   |   | $ |  | 
|          |          |                                      |      |      |      |      |     |      |     |   |   |  

The Company has cumulative federal net operating loss carryforwards of
approximately $12.1 million, which expire between 2019 and 2021. In addition,
the Company had available at June 30, 2001, cumulative net operating loss
carryforwards of $13.8 million for Florida state income tax purposes, which
expire between 2019 and 2021.

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Based on recent tax law changes, which extended the carryback period for net
operating losses and changed certain alternative minimum tax liability rules, a
net $215,000 tax benefit was recorded in fiscal year 2002.
The tax effects of the primary temporary differences giving rise to the
Companys deferred tax assets and liabilities are as follows for the
years ended June 30, (in thousands):

|                                                                                                                |          |       |        |       |     |      |  |  |  |           |     |       |     |           |        |       |   |   |    |    |    | 
|--------------------------------------------------------------------------------------------------------------- | -------- | ----- | ------ | ----- | --- | ---- |  |  |  | --------- | --- | ----- | --- | --------- | ------ | ----- | - | - | -- | -- | -- | 
|                                                                                                                |          |       |        | 2002  |     | 2001
|                                                                                                                |          |       |        |       |     |     
|                                                                                                                |          |       |        | Asset |     |      |  |  |  | Liability |     | Asset |     | Liability
|                                                                                                                |          |       |        |       |     |      |  |  |  |           |     |       |     |          
|Revenue Recognized on Completed Contract for
Tax Return and on Percentage of Completion for
Financial Reporting |          | $     |       |       |     |      |  |  |  | $         | 286 |       |     | $         | 104    |       |   | $ |   |   
|Federal Operating Loss Carryforwards                                                                            |          |       | 4,198  |       |     |      |  |  |  |           |    |       |     |           | 4,183  |       |   |   |   |   
|Federal Tax Credit Carryforwards                                                                                |          |       | 269    |       |     |      |  |  |  |           |    |       |     |           | 510    |       |   |   |   |   
|State Tax Loss Carryforwards                                                                                    |          |       | 988    |       |     |      |  |  |  |           |    |       |     |           | 705    |       |   |   |   |   
|Difference between Book and Tax Depreciation                                                                    |          |       | 315    |       |     |      |  |  |  |           |    |       |     |           | 224    |       |   |   |   |   
|Capitalized Bid and Proposal Expense                                                                            |          |       | 96     |       |     |      |  |  |  |           |    |       |     |           | 194    |       |   |   |   |   
|Accruals Not Currently Deductible                                                                               |          |       | 353    |       |     |      |  |  |  |           | 61  |       |     |           | 1,148  |       |   |   | 61 |   
|                                                                                                                |          |       |        |       |     |      |  |  |  |           |     |       |     |           |        |       |   |   |    |   
|                                                                                                                | Subtotal |       |        | 6,219 |     |      |  |  |  |           |     | 347   |     |           |        | 7,068 |   |   |    | 61 |   
|Valuation Allowance                                                                                             |          |       | (5,933 | )     |     |      |  |  |  |           |    |       |     |           | (7,068 | )     |   |   |   |   
|                                                                                                                |          |       |        |       |     |      |  |  |  |           |     |       |     |           |        |       |   |   |    |   
|                                                                                                                |          | Total |        | $     | 286 |      |  |  |  |           |     | $     | 347 |           |        | $     |  |   |    | $  | 61 | 
|                                                                                                                |          |       |        |       |     |      |  |  |  |           |     |       |     |           |        |       |   |   |    |   

A valuation allowance provided at June 30, 2002 and 2001 relates primarily to
federal and state net operating loss carryforwards which are subject to
uncertainty as to their ultimate realization.

These deferred tax assets and liabilities are included in/or classified as
follows on the Consolidated Balance Sheets for the years ended June 30, (in
thousands):

|                              |  |      |     |      |  |   |    | 
|----------------------------- |  | ---- | --- | ---- |  | - | -- | 
|                              |  | 2002 |     | 2001
|                              |  |      |     |     
|Prepaid Expenses and Other    |  | $    |    |      |  | $ |   | 
|Accrued Expenses and Other    |  | $    |    |      |  | $ |   | 
|Deferred Income Tax Liability |  | $    | 385 |      |  | $ | 61 | 

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Differences between the statutory U.S. Federal Income Tax rate and the
effective income tax rate reported in the financial statements are as
follows for continuing operations for the years ended June 30:

|                                             |                                                                 |                                            |       |      |      |      |       |      |     |   |       |     |     |  
|-------------------------------------------- | --------------------------------------------------------------- | ------------------------------------------ | ----- | ---- | ---- | ---- | ----- | ---- | --- | - | ----- | --- | --- | -
|                                             |                                                                 |                                            |       | 2002 |      | 2001 |       | 2000
|                                             |                                                                 |                                            |       |      |      |      |       |     
|Federal Statutory Rates                      |                                                                 |                                            | 34.0  | %    |      |      | (34.0 | %)   |     |   | 34.0  | %  
|Decrease/(Increase) in Taxes Resulting From: |                                                                 |                                            |       |      |      |      |       |      |     |   |       |    
|                                             | State Income Taxes (after deducting
Federal Income Tax Benefit) |                                            |       | 0.0  | %    |      |       | 0.0  | %   |   |       | 1.3 | %  
|Valuation Allowance                          |                                                                 |                                            | (35.5 | %)   |      |      | 35.0  | %    |     |   | (34.9 | %) 
|Other                                        |                                                                 |                                            | 0.0   | %    |      |      | 1.3   | %    |     |   | (0.4  | %) 
|                                             |                                                                 |                                            |       |      |      |      |       |      |     |   |       |    
|                                             |                                                                 | Total Provision/(Benefit) for Income Taxes |       |      | (1.5 | %)   |       |      | 2.3 | % |       |     | 0.0 | %
|                                             |                                                                 |                                            |       |      |      |      |       |      |     |   |       |    

The tax benefit realized from the exercise of stock options was immaterial in
fiscal years 2001, 2000 and 1999. These tax benefits were credited to Capital
in Excess of Par.

Note 9. Financial Instruments

Concentrations of Credit Risk

Financial instruments, which potentially subject the Company to concentrations
of credit risk consist principally of accounts receivables from major defense
prime contractors and U.S. government agencies which minimizes the Companys
credit risk. The Company generally does not require collateral or other
security to support customer receivables.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate their fair values because of the
short maturity of these instruments. The fair value of the Companys debt
approximates fair value due to the variable nature of the interest rate on the
debt.

Note 10. Shareholders Equity

Due to the excess cash position and in order to enhance shareholder value, on
August 9, 2000, the Board of Directors authorized a plan to repurchase up to
$3,000,000 of common stock during fiscal year 2001. A total of 727,000 shares
of stock was repurchased in fiscal year 2001 for approximately $2,909,000 and
is reflected as Treasury Stock, which is accounted for at actual cost.

On August 23, 2002, the Board of Directors authorized a plan to repurchase an
additional $1,500,000 of common stock. Any repurchases would be made from time
to time in the open market or in negotiated transactions pursuant to the safe
harbor rules of the Securities Exchange Commission. Repurchases will be
effected if and when management deems prudent. Approval to execute this plan
must be obtained from LaSalle Business Credit under the Companys Credit
Facility prior to any purchases.

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On August 27, 1996, the Board of Directors declared a dividend distribution of
one Right (a Right) for each outstanding share of the Companys Common Stock
to stockholders of record at the close of business on September 17, 1996. Each
Right entitles the registered holder to purchase from the Company one
one-thousandth of a share (a Unit) of Series B Junior Participating Preferred
Stock, $0.10 par value per share at a purchase price of $40.00 per Unit,
subject to adjustment. The description and terms of the Rights are set forth
in a Rights Agreement dated August 27, 1996 between the Company and Mellon
Bank, N.A. as Rights Agent, as amended (the Rights Agreement). On August 9,
2000, the Board of Directors terminated the Rights Agreement and, as required
under the Rights Agreement, on September 1, 2000, stockholders of record at the
close of business on August 9, 2000 received $0.01 for each Right held.

Note 11. Stock Compensation

The Company has several stock-based compensation plans, which are described
below. The Companys Organization and Compensation Committee administers all
the stock benefit plans of the Company. The Company applies APB Opinion No. 25
and related Interpretations in accounting for its plans. Since stock option
exercise prices are equal to the fair market value of the stock on the date of
grant for its fixed stock option plans and equal to 85% of the fair market
value on the date of exercise for stock issued under the employee stock
purchase plans, compensation expense is not recognized. However, had
compensation cost for the Companys stock-based compensation plans been
determined based on the fair value of the options at the grant dates for awards
under those plans consistent with the method of SFAS No. 123, the Companys net
income/(loss) and net income/(loss) per share for fiscal years 2002, 2001 and
2000 would have been changed to the pro-forma amounts indicated below (in
thousands, except per share data):

|                                    |  |      |       |      |  |      |        |   |  |   |       | 
|----------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ----- | 
|                                    |  | 2002 |       | 2001 |  | 2000
|                                    |  |      |       |      |  |     
|Net Income/(Loss)                   |  | $    | 2,775 |      |  | $    | (7,367 | ) |  | $ | 3,251 | 
|Net Income/(Loss) Per Share-Basic   |  | $    | 0.35  |      |  | $    | (0.92  | ) |  | $ | 0.39  | 
|Net Income/(Loss) Per Share-Diluted |  | $    | 0.35  |      |  | $    | (0.92  | ) |  | $ | 0.38  | 

In accordance with FAS Statement 123, Accounting for Stock-Based
Compensation, the pro-forma calculations do not include the effects of options
granted prior to fiscal year 1996. As such, the impact is not necessarily
indicative of the effects on reported net income in future years.

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The fair value of options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:

|                                    |  |      |       |      |  |      |       |   |  |  |       |  
|----------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                    |  | 2002 |       | 2001 |  | 2000
|                                    |  |      |       |      |  |     
|Net Income/(Loss)                   |  |      | 0.00  | %    |  |      | 0.00  | % |  |  | 0.00  | %
|Net Income/(Loss) Per Share-Basic   |  |      | 3.60  | %    |  |      | 6.22  | % |  |  | 5.49  | %
|Net Income/(Loss) Per Share-Diluted |  |      | 41.89 | %    |  |      | 40.18 | % |  |  | 41.59 | %
|Expected Life (in years)            |  |      | 6.00  |      |  |      | 6.00  |   |  |  | 6.00  |  

There were 47,000, 152,500 and 215,000 options granted during fiscal years
2002, 2001 and 2000, respectively, with weighted average fair values of $1.56
in 2002, $1.70 in 2001, and $1.80 in 2000.

Under the Companys 1998 Stock Incentive Plan, directors, officers and certain
key employees may purchase the Companys Common Stock at 100% of the fair
market value of the shares on the date of grant. Vesting of options is
determined by the Board of Directors. Generally, options
granted based on performance in the previous fiscal year are exercisable on the
date granted. Options granted to provide an incentive for future performance
are exercisable one year from the date granted. All options expire ten years
from the grant date. There were 600,000 shares reserved for issuance under the
1998 Plan. Options to purchase 47,000, 152,500 and 185,000 shares were granted
under the plan during fiscal years 2002, 2001 and 2000, respectively.

Under the Companys 1991 Stock Incentive Plan, directors, officers and key
employees were granted the right to purchase the Companys Common Stock at 100%
of fair market value of the shares on the date of the grant. Unless the Board
of Directors determined otherwise, 20% of the options granted under the Plan
were exercisable one year from the date the option was granted. An additional
20% was exercisable each year thereafter. All options expire upon the earlier
of 10 years and 30 days from date of grant or, with respect to shares covered
by such options, five years from the date the option first became exercisable.
The 1991 Plan expired in 2001. No additional options can be granted pursuant
to the Plan. Options to purchase 30,000 shares were granted under the 1991
Plan during fiscal year 2000.

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A summary of stock option transactions for the fiscal years ended June 30,
2002, 2001 and 2000 are as follows:

|                         |  |              |          |                  |  |   |       | 
|------------------------ |  | ------------ | -------- | ---------------- |  | - | ----- | 
|                         |  | Shares Under |          | Weighted Average
|                         |  | Option       |          | Exercise Price  
|                         |  |              |          |                 
|Balance at June 30, 1999 |  |              | 793,068  |                  |  | $ | 6.75  | 
|Options Granted          |  |              | 215,000  |                  |  |   | 3.71  | 
|Options Exercised        |  |              | (3,400   | )                |  |   | 2.13  | 
|Options Terminated       |  |              | (94,195  | )                |  |   | 10.77 | 
|                         |  |              |          |                  |  |   |       | 
|Balance at June 30, 2000 |  |              | 910,473  |                  |  | $ | 5.63  | 
|Options Granted          |  |              | 152,500  |                  |  |   | 3.47  | 
|Options Exercised        |  |              | (54,337  | )                |  |   | 3.15  | 
|Options Terminated       |  |              | (143,800 | )                |  |   | 9.03  | 
|                         |  |              |          |                  |  |   |       | 
|Balance at June 30, 2001 |  |              | 864,836  |                  |  | $ | 4.84  | 
|                         |  |              |          |                  |  |   |       | 
|Options Granted          |  |              | 47,000   |                  |  | $ | 3.40  | 
|Options Exercised        |  |              | (10,000  | )                |  |   | 2.63  | 
|Options Terminated       |  |              | (84,500  | )                |  |   | 8.73  | 
|                         |  |              |          |                  |  |   |       | 
|Balance at June 30, 2002 |  |              | 817,336  |                  |  | $ | 4.38  | 
|                         |  |              |          |                  |  |   |       | 

Options exercisable were 817,336, 804,836 and 735,473 at June 30, 2002, 2001
and 2000, respectively.

Stock options outstanding at June 30, 2002 are summarized as follows:

|                |  |             |         |                  |  |                  |  |             |       |                |  |  |         |          |  |   |       |  |  | 
|--------------- |  | ----------- | ------- | ---------------- |  | ---------------- |  | ----------- | ----- | -------------- |  |  | ------- | -------- |  | - | ----- |  |  | 
|                |  |             |         |                  |  | Weighted Average |  | Weighted    |       |                |  |  |         | Weighted
|Range of        |  | Number      |         | Remaining        |  | Average          |  | Number      |       | Average       
|Exercise Prices |  | Outstanding |         | Contractual Life |  | Exercise Price   |  | Exercisable |       | Exercise Price
|                |  |             |         |                  |  |                  |  |             |       |               
|$1.15-2.30      |  |             | 28,586  |                  |  | 6 years          |  | $           | 1.82  |                |  |  | 28,586  |          |  | $ | 1.82  | 
|$2.30-3.45      |  |             | 419,500 |                  |  | 6 years          |  | $           | 3.19  |                |  |  | 419,500 |          |  | $ | 3.19  | 
|$3.45-4.60      |  |             | 261,000 |                  |  | 7 years          |  | $           | 3.76  |                |  |  | 261,000 |          |  | $ | 3.76  | 
|$9.20-10.35     |  |             | 17,000  |                  |  | 4 years          |  | $           | 10.00 |                |  |  | 17,000  |          |  | $ | 10.00 | 
|$10.35-11.50    |  |             | 91,250  |                  |  | 3 years          |  | $           | 11.39 |                |  |  | 91,250  |          |  | $ | 11.93 | 

The Company currently maintains an Employee Stock Purchase Plan which is
intended to provide eligible employees with an opportunity to purchase the
Companys Common Stock through payroll deductions at eighty-five percent of the
market price on specified dates. The Stockholders approved the 1999 Employee
Stock Purchase Plan during fiscal year 1999 reserving 360,000 shares for
issuance under this plan.

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Shares issued under the 1999 Employee Stock Purchase plan during fiscal years
ended June 30, 2002, 2001, and 2000, were 7,656, 17,529 and 38,291,
respectively. The fair value of shares issued during fiscal years 2002, 2001
and 2000 were $0.74, $0.64 and $0.94 share, respectively. The fair value of
these shares was estimated using a Black-Scholes Option pricing model with the
following weighted average assumptions for fiscal years:

|                          |  |      |       |      |  |      |       |   |  |  |       |  
|------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                          |  | 2002 |       | 2001 |  | 2000
|                          |  |      |       |      |  |     
|Expected Dividend Yield   |  |      | 0.00  | %    |  |      | 0.00  | % |  |  | 0.00  | %
|Risk-free Interest Rate   |  |      | 3.60  | %    |  |      | 6.22  | % |  |  | 5.49  | %
|Expected Volatility       |  |      | 41.89 | %    |  |      | 40.18 | % |  |  | 41.59 | %
|Expected Life (in months) |  |      | 6     |      |  |      | 6     |   |  |  | 6     |  

The Company has available 1,000,000 authorized and unissued shares of $0.10 par
value Preferred Stock. Shares may be issued from time to time in one or more
series, each series
having such special rights, privileges and preferences as may be determined by
the Board of
Directors at the time of issuance.

During fiscal year 1998, the Board of Directors and Stockholders approved a
Director Equity Compensation Plan. Under the Plan, the members of the
Companys Board of Directors can choose to receive unrestricted shares of the
Companys Common Stock in lieu of 50% of the otherwise payable directors fees.
A total of 75,000 shares of Common Stock were reserved for issuance under the
Plan. During fiscal year 2000, the Board of Directors approved an additional
50,000 shares of the Companys Common Stock for issuance under the Plan.
During fiscal years 2002, 2001 and 2000, 2,667, 4,354 and 27,211 shares,
respectively, were issued under this Plan.

On June 15, 1998, the Company entered into a Stock Purchase Agreement with
its Chief Executive Officer (CEO). In connection with this agreement, the
CEO purchased 50,000 shares of common stock. The CEO paid $10,000 cash
and issued a non-recourse Promissory Note to
the Company in the amount of $146,250 in payment of the shares. The Promissory
Note bears an interest rate of 5.58% and was repayable together with interest
on June 15, 2001. On May 3, 2001, the Company extended the Employment
Agreement with the CEO and the maturity date of the Promissory Note to July 1,
2002. The Promissory Note and accrued interest balance was $179,228 at June
30, 2002. The Promissory Note and accrued interest were paid in full on
July 1, 2002.

As a result of the note receivable and related accrued interest being
non-recourse to the CEO,
the sale of stock has been treated as variable stock compensation arrangement.
Compensation expense relating to the arrangement was not material in fiscal
year 2000, 2001 or 2002.

Note 12. Business Segment Information

The Company operates in one segment; training. This segment includes the
design and manufacture of training simulators.

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Sales by Class of Customer

|                           |             |                                  |   |                |        |      |    |        |        |  |   |        |        | 
|-------------------------- | ----------- | -------------------------------- | - | -------------- | ------ | ---- | -- | ------ | ------ |  | - | ------ | ------ | 
|                           |             |                                  |   | (In Thousands)
|                           |             |                                  |   | 2002           |        | 2001 |    | 2000  
|                           |             |                                  |   |                |        |      |    |       
|U.S. Department of Defense |             |                                  |   |                |        |      |    |        |        |  |   |       
|                           | Direct      |                                  | $ | 7,246          |        |      | $  | 11,847 |        |  | $ | 4,562  |       
|                           | Subcontract |                                  |   | 24,715         |        |      |    | 16,878 |        |  |   | 36,314 |       
|                           |             |                                  |   |                |        |      |    |        |        |  |   |       
|                           |             | Total U.S. Department of Defense |   |                | 31,961 |      |    |        | 28,725 |  |   |        | 40,876 | 
|                           |             |                                  |   |                |        |      |    |        |        |  |   |       
|Foreign Governments        |             |                                  |  |                |        |      | 11 |        |        |  |  |       
|Foreign Commercial         |             |                                  |  |                |        |      |   |        |        |  |  |       
|                           |             |                                  |   |                |        |      |    |        |        |  |   |       
|                           |             | Total Foreign and Other          |   |                |       |      |    |        | 11     |  |   |        |       | 
|                           |             |                                  |   |                |        |      |    |        |        |  |   |       
|                           |             | Total Sales                      |   | $              | 31,961 |      |    | $      | 28,736 |  |   | $      | 40,876 | 
|                           |             |                                  |   |                |        |      |    |        |        |  |   |       

Export Sales from the U.S. were not material for the fiscal year ended June 30,
2002, 2001 and 2000. Export sales do not include Foreign Military Sales
through U.S. Government agencies and prime contractors of $416,000 in the
fiscal year ended June 30, 2000. There were no Foreign Military Sales in the
fiscal years ended June 30, 2002 and 2001.

Since the substantial portion of the Companys revenue is attributable to long
term contracts with various government agencies, any factor affecting
procurement of long term government contracts, such as changes in government
spending, cancellation of weapons programs and delays in contract award could
have a material adverse effect on the Companys financial condition and results
of operations.

In fiscal year 2002, sales to Raytheon/Lockheed Martin JAVELIN Joint Venture
(the Joint Venture) were $16.5 million or 52% of total sales. Sales to the
United States Government were $7.2 million or 23% of total sales. Sales to
Lockheed Martin Corporation (Lockheed) were $4.2 million or 13% of total
sales.

In fiscal year 2001, sales to the United States Government were $11.8 million
or 41% of total sales. Sales to the Joint Venture were $7.4 million or 26% of
total sales. Sales to Lockheed were $6.2 million or 22% of total sales.

In fiscal year 2000, sales to the Joint Venture were $12.1 million or 30% of
total sales. Sales to Lockheed were $11.8 million or 29% of total sales.
Sales to The Boeing Company were $10.3 million or 25% of total sales. Sales to
the United States Government were $4.6 million or 11% of total sales.

Sales by Geographic Area

All of the Companys Revenues, Operating Income and Long-Lived Assets are
within the United States for the fiscal years ended June 30, 2002, 2001 and
2000.

Page 36 of 54



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##### 



Note 13. Summary of Quarterly Results (Unaudited)

|                                 |                             |          |       |                                      |       |          |       |       |      |      |       |  |      |   |       |  |      | 
|-------------------------------- | --------------------------- | -------- | ----- | ------------------------------------ | ----- | -------- | ----- | ----- | ---- | ---- | ----- |  | ---- | - | ----- |  | ---- | 
|                                 |                             |          |       | (In Thousands Except Per Share Data)
|                                 |                             |          |       | September                            |       | December |       | March |      | June
|2002                             |                             | 30       |       | 31                                   |       | 31       |       | 30   
|                                 |                             |          |       |                                      |       |          |       |      
|Net Sales                        |                             | $        | 6,147 |                                      |       | $        | 6,749 |       |      | $    | 9,139 |  |      | $ | 9,926 | 
|Gross Profit                     |                             |          | 1,717 |                                      |       |          | 2,176 |       |      |      | 3,144 |  |      |   | 3,795 | 
|Operating Income/(Loss)          |                             |          | (564  | )                                    |       |          | 412   |       |      |      | 1,414 |  |      |   | 1,457 | 
|Net Income/(Loss)                |                             |          | (536  | )                                    |       |          | 375   |       |      |      | 1,734 |  |      |   | 1,386 | 
|Income/(Loss) Per Common Share - |                             |          |       |                                      |       |          |       |       |      |      |       |  |      |   |       | 
|                                 | Basic and Assuming Dilution |          |       |                                      |       |          |       |       |      |      |       |  |      |   |       |  |     
|                                 |                             | Basic    |       |                                      | (0.07 | )        |       |       | 0.05 |      |       |  | 0.22 |   |       |  | 0.18 | 
|                                 |                             | Dilutive |       |                                      | (0.07 | )        |       |       | 0.05 |      |       |  | 0.22 |   |       |  | 0.18 | 

As a result of the periodic review of estimated costs at completion and
consideration of changes in facts and circumstances, revisions were made to the
estimated cost to complete for certain contracts in the second, third and
fourth quarters of fiscal year 2002. Gross margin adjustments on contracts
resulted in additional income of approximately $350,000, $1,000,000, and
$450,000 during the second, third and fourth quarters of fiscal year 2002,
respectively.

|                          |                             |          |       |                                      |   |          |        |       |       |      |        |   |       |   |        |   |       |  
|------------------------- | --------------------------- | -------- | ----- | ------------------------------------ | - | -------- | ------ | ----- | ----- | ---- | ------ | - | ----- | - | ------ | - | ----- | -
|                          |                             |          |       | (In Thousands Except Per Share Data)
|                          |                             |          |       | September                            |   | December |        | March |       | June
|2001                      |                             | 30       |       | 31                                   |   | 31       |        | 30   
|                          |                             |          |       |                                      |   |          |        |      
|Net Sales                 |                             | $        | 7,471 |                                      |   | $        | 7,548  |       |       | $    | 5,749  |   |       | $ | 7,968  |  
|Gross Profit              |                             |          | 2,159 |                                      |   |          | 394    |       |       |      | 863    |   |       |   | 585    |  
|Operating Income          |                             |          | (110  | )                                    |   |          | (1,880 | )     |       |      | (1,886 | ) |       |   | (3,000 | )
|Net Income                |                             |          | 9     |                                      |   |          | (2,020 | )     |       |      | (2,055 | ) |       |   | (3,073 | )
|Income Per Common Share - |                             |          |       |                                      |   |          |        |       |       |      |        |   |       |   |        |  
|                          | Basic and Assuming Dilution |          |       |                                      |   |          |        |       |       |      |        |   |       |   |        |   |      
|                          |                             | Basic    |       |                                      |  |          |        |       | (0.25 | )    |        |   | (0.26 | ) |        |   | (0.38 | )
|                          |                             | Dilutive |       |                                      |  |          |        |       | (0.25 | )    |        |   | (0.26 | ) |        |   | (0.38 | )

As a result of the periodic review of estimated costs at completion and
consideration of changes in facts and circumstances, revisions were made to the
estimated cost to complete for certain contracts in the second and fourth
quarters of fiscal year 2001. Gross margin adjustments on contracts resulted
in a reduction to income of approximately $700,000 during the second quarter
and additional income of approximately $500,000 during the fourth quarter of
fiscal year 2001. In addition, a $657,000 reserve for doubtful account (see
note 2 in the Notes to the Consolidated Financial Statementsf) and a $1,041,000
reserve for excess and obsolete inventory related to the reconfiguration of the
Company into a smaller area were recorded in the fourth quarter of fiscal year
2001.

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##### 



Note 14. Commitments and Contingencies

The Company and its subsidiaries lease certain equipment under operating
leases. Future minimum lease payments under all non-cancelable operating
leases as of June 30, 2002 are as follows:

|                             |                |  |  |  |  |   |    | 
|---------------------------- | -------------- |  |  |  |  | - | -- | 
|                             | (In Thousands)
|2003                         |                |  |  |  |  | $ | 53 | 
|2004                         |                |  |  |  |  |   | 42 | 
|                             |                |  |  |  |  |   |    | 
|Total Minimum Lease Payments |                |  |  |  |  | $ | 95 | 
|                             |                |  |  |  |  |   |    | 

Rent expense under all operating leases was approximately $406,000, $435,000
and $456,000 for the fiscal years ended June 30, 2002, 2001 and 2000,
respectively.

During fiscal year 2001, the Company announced the formation of a strategic
planning committee to evaluate various strategic alternatives for enhancing
stockholder value including a potential sale of the Company. In order to
retain critical employees, retention agreements were implemented with 28 key
employees whereby an incentive of 15-20% of their salaries would be
payable in two increments: half at the date of the sale of the Company and half
six months after the close of the sale. These payments totaling $420,000 will
be recorded in the event the Company is sold.

As the Company reconfigures into a smaller space, certain activities will be
outsourced. Retention agreements were implemented in order to temporarily
retain 12 key employees whose jobs will be outsourced during fiscal year 2003.
Severance payments and retention bonuses totaling $115,000 will be recorded
based on the employees remaining with the Company through completion dates
ranging from October 2002 through March 2003.

The Company is party to various legal proceedings arising from normal business
activity. Management believes that the ultimate resolution of these matters
will not have an adverse material effect on the Companys financial condition
or results of operations.

Note 15. Unusual Expenses

During fiscal year 2001, the Company reduced its operating costs by eliminating
105 employees or 35% of the total number of employees. Termination benefits
associated with the reductions were approximately $1,418,000. Annual
compensation savings associated with these actions were $4,300,000. All
employee termination benefits related to the fiscal year 2001 reductions in
workforce were paid by October 31, 2001.

In September 2001, the Company further reduced its operating costs by
eliminating approximately 35 employees or 20% of the total remaining employees.
Annual compensation savings associated with these actions were approximately
$2.2 million. The employee termination benefits associated with the reduction
in workforce totaled approximately $272,000, of which $253,000 was recorded to
cost of sales and $19,000 was recorded to selling, general and administrative
expenses. All termination benefits related to the September 2001 reduction in
force were paid in fiscal year 2002.

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##### 



In April 2002, the Company announced that Dr. James C. Garrett, President and
Chief Executive Officer would leave the Company at the end of June 2002.
Severance costs of approximately $255,000 were recorded in June 2002, and are
included in Accrued Expenses and Other. These costs will be paid during fiscal
year 2003.

In July 2002, the Company further reduced its operating costs by eliminating 15
employees or 11% of the remaining employees. The employee termination benefits
associated with the reductions were approximately $197,000 and will be recorded
in fiscal year 2003. Annual compensation savings associated with theses
actions were approximately $1,200,000.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

The Company has nothing to report under this item.

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##### 



PART III

Item 10. Directors and Executive Officers of the Registrant

The information concerning directors required by Item 10 is included under the
caption Election of Directors in the Companys definitive Proxy Statement
(the 2002 Proxy Statement) to be filed pursuant to Regulation 14A on or
before October 29, 2002, and that information is incorporated by reference in
this Form 10-K. Information concerning executive officers required by Item 10
is located at the end of Part I of this Form 10-K under the caption Executive
Officers and Key Management Employees of the Registrant.

Item 11. Executive Compensation

The information required by Item 11 is included under the subcaption
Directors Compensation and in the text and tables under the caption
Executive Compensation in the 2002 Proxy Statement, and that information is
incorporated by reference in this Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management

The information required by Item 12 is included under the caption Security
Ownership of Certain Beneficial Owners and Management in the 2002 Proxy
Statement, and that information is incorporated by reference in this Form 10-K.

Item 13. Certain Relationships and Related Transactions

None.

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##### 



PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)  (1) and (2) Financial Statements

The financial statements filed as part of this Annual Report are listed in the
Index to Consolidated Financial Statements on page 14. Schedules other than
those so listed are omitted for the reason that they are either not applicable
or not required or because the information required is contained in the
consolidated financial statements or notes thereto.

(3)  Exhibits

EXHIBIT INDEX

|            |  |                                                                                                                                   
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                       
|            |  |                                                                                                                                   
|3.1         |  | Certificate of Incorporation (4)                                                                                                  
|           
|3.2         |  | By-Laws (1)                                                                                                                       
|           
|4.1         |  | Form of Common Stock Certificate (4)                                                                                              
|           
|10.5*       |  | Form of Stock Option Agreement for outside directors (6)                                                                          
|           
|10.8*       |  | Form of Directors and Officers Agreement to Defend and Indemnify (2)                                                            
|           
|10.10       |  | Overdraft Facility dated as of April 3, 1995 by and among ECC
Simulation Limited and First Fidelity Bank, N.A., London Branch (7) 
|           
|10.12       |  | Lease between ECC International Corp and State of Wisconsin Investment
Board for the premises 2900 Titan Row, Orlando, Florida (5)
|           
|10.16*      |  | ECC International Corp Executive Savings Plan (5)                                                                                 
|           
|10.23*      |  | Director Equity Compensation Plan (8)                                                                                             
|           
|10.28*      |  | 1998 Stock Incentive Plan (10)                                                                                                    
|           
|10.30*      |  | Stock Purchase Agreement dated as of June 15, 1998 by and between the
Company and James C. Garrett (10)                           
|           
|10.31*      |  | Promissory Note dated as of June 15, 1998 by and between the Company
and James C. Garrett (10)                                    

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##### 



|            |  |                                                                                                                                                                                                                                                              
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                              
|10.32*      |  | Consulting Agreement dated as of April 1, 1998 by and between the
Company and George W. Murphy (10)                                                                                                                                                          
|           
|10.33*      |  | Non-Competition and Non-Solicitation Agreement dated as of April 1,
1998 by and between the Company and George W. Murphy (10)                                                                                                                                
|           
|10.37       |  | Loan and Security Agreement dated June 24, 1999 by and between the
Company and Mellon Bank, N.A (11)                                                                                                                                                         
|           
|10.38       |  | 1999 Employee Stock Purchase Plan (12)                                                                                                                                                                                                                       
|           
|10.39       |  | Agreement dated September 16, 1999 by and between the Company, Steel
Partners II, L.P. and Warren G. Lichtenstein (13)                                                                                                                                       
|           
|10.41*      |  | Amendment and Restated Non-Competition and Non-Solicitation
Agreement dated August 9, 1999 by and between the Company and James C. Garrett (13)                                                                                                              
|           
|10.42*      |  | Employment Agreement dated August 9, 1999 by and between the
Company and Glenn Andrew (13)                                                                                                                                                                   
|           
|10.43*      |  | Non-Competition and Non-Solicitation Agreement dated August 9, 1999 by
and between the Company and Glenn Andrew (13)                                                                                                                                         
|           
|10.44*      |  | Employment Agreement dated August 9, 1999 by and between the Company and
Melissa Van Valkenburgh (13)                                                                                                                                                        
|           
|10.45*      |  | Non-Competition and Non-Solicitation Agreement dated August 9, 1999 by
and between the Company and Melissa Van Valkenburgh (13)                                                                                                                              
|           
|10.46*      |  | Employment Agreement dated May 3, 2001 by and between the Company and
James C. Garrett (13)                                                                                                                                                                  
|           
|10.47*      |  | Change of Control Contract dated May 3, 2001 by and between the Company
and James C. Garrett (14)                                                                                                                                                            
|           
|10.48       |  | Forbearance Agreement and Fourth Amendment to Loan and Security
Agreement by and among ECC International Corp., ECC Vending Corp.,
Educational Computer Corporation International, and Standard Federal Bank
National Association dated November 5, 2001 (15)
|           
|10.49*      |  | Consulting Agreement dated July 1, 2002 by and between the Company and
James R. Henderson                                                                                                                                                                    
|           
|21          |  | Subsidiaries of the Registrant (9)                                                                                                                                                                                                                           
|           
|23          |  | Consent of PricewaterhouseCoopers, LLP                                                                                                                                                                                                                       

Page 42 of 54



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##### 



|            |  |                                                                                                       
|----------- |  | ------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                           
|            |  |                                                                                                       
|99.1        |  | Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002    
|           
|99.2        |  | Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002    
|           
|99.3        |  | Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|           
|99.4        |  | Certification of Principal Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002



---

|*    |  | Management contract or other compensatory plan or arrangement                                                                                         
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(1)  |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended December 31, 1996 (Commission File No.
001-8988)    
|    
|(2)  |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 (Commission File No. 001-8988)       
|    
|(3)  |  | Incorporated by reference to the Registrants Annual Report on Form 10-K
for the year ended June 30, 1991 (Commission File No. 001-8988)              
|    
|(4)  |  | Incorporated by reference to the Registrants Annual Report on Form 10-K
for the year ended June 30, 1993 (Commission File No. 001-8988)              
|    
|(5)  |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended December 31, 1995 (Commission File No.
001-8988)    
|    
|(6)  |  | Incorporated by reference to the Registrants Annual Report on Form 10-K
for the year ended June 30, 1994 (Commission File No. 001-8988)              
|    
|(7)  |  | Incorporated by reference to the Registrants Annual Report on Form 10-K
for the year ended June 30, 1995 (Commission File No. 001-8988)              
|    
|(8)  |  | Incorporated by reference to Annex A of the Registrants Definitive
Schedule 14A filed with the SEC on October 27, 1997 (Commission File No.
001-8988)
|    
|(9)  |  | Incorporated by reference to the Registrants Annual Report on Form 10-K
for the year ended June 30, 1997 (Commission File No. 001-8988)              
|    
|(10) |  | Incorporated by reference to the Registrants Annual Report on Form 10-K
for the year ended June 30, 1998 (Commission File No. 001-8988)              

Page 43 of 54



---



##### 



|(11) |  | Incorporated by reference to the Registrants Current Report on Form 8-K
filed July 8, 1999 (Commission File No. 001-8988)                         
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(12) |  | Incorporated by reference to the Registrants Definitive Schedule 14A
filed on October 28, 1998 (Commission File No. 001-8988)                     
|    
|(13) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended September 30, 1999 (Commission File No.
001-8988)
|    
|(14) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended March 31, 2001 (Commission File No. 001-8988)    
|    
|(15) |  | Incorporated by reference to the Registrants Quarterly Report on Form
10-Q for the quarter ended September 30, 2001 (Commission File No.
001-8988)

(b) Reports on Form 8-K

None.

Page 44 of 54



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##### 



Schedule II-Valuation and Qualifying Accounts
For the Years Ended June 30, 2002, 2001, and 2000
(In Thousands)

---

|                                            |  |           |       |           |  |            |       |            |  |         |     |        |  |   |        |   |  |   |       | 
|------------------------------------------- |  | --------- | ----- | --------- |  | ---------- | ----- | ---------- |  | ------- | --- | ------ |  | - | ------ | - |  | - | ----- | 
|                                            |  |           |       |           |  | Additions  |       |            |  |         |     |        |  |  
|                                            |  |           |       |           |  |            |       |            |  |         |     |        |  |  
|                                            |  |           |       |           |  | Charged to |       | Charged to |  |         |     |        |  |   |        |  
|                                            |  | Beginning |       | Costs and |  | Other      |       |            |  |         |     | Ending
|Description                                 |  | Balance   |       | Expenses  |  | Accounts   |       | Deductions |  | Balance
|                                            |  |           |       |           |  |            |       |            |  |        
|Inventory Reserve                           |  |           |       |           |  |            |       |            |  |         |     |        |  |   |        |   |  |   |       | 
|2000                                        |  | $         | 508   |           |  | $          | 2,080 |            |  | $       |    |        |  | $ | (424   | ) |  | $ | 2,164 | 
|2001                                        |  |           | 2,164 |           |  |            | 1,282 |            |  |         |    |        |  |   | (634   | ) |  |   | 2,812 | 
|2002                                        |  |           | 2,812 |           |  |            | 150   |            |  |         | 122 |        |  |   | (2,473 | ) |  |   | 611   | 
|                                           
|Allowance for
Doubtful Accounts             |  |           |       |           |  |            |       |            |  |         |     |        |  |   |        |   |  |   |       | 
|2000                                        |  |           |      |           |  |            |      |            |  |         |    |        |  |   |       |   |  |   |      | 
|2001                                        |  |           |      |           |  |            | 657   |            |  |         |    |        |  |   |       |   |  |   | 657   | 
|2002                                        |  |           | 657   |           |  |            |      |            |  |         |    |        |  |   | (140   | ) |  |   | 517   | 
|                                           
|Valuation Allowance for
Deferred Tax Assets |  |           |       |           |  |            |       |            |  |         |     |        |  |   |        |   |  |   |       | 
|2000                                        |  |           | 5,568 |           |  |            |      |            |  |         |    |        |  |   | (1,186 | ) |  |   | 4,382 | 
|2001                                        |  |           | 4,382 |           |  |            | 2,686 |            |  |         |    |        |  |   |       |   |  |   | 7,068 | 
|2002                                        |  | $         | 7,068 |           |  | $          |      |            |  | $       |    |        |  | $ | (1,135 | ) |  | $ | 5,933 | 

Page 45 of 54



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##### 



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

|                                                 |  | 
|------------------------------------------------ |  | 
|ECC INTERNATIONAL CORP.                          |  | 
|                                                
|                                                
|                                                
|By: /s/ Melissa Van Valkenburgh                  |  | 
|                                                 |  | 
|Melissa Van Valkenburgh, Chief Financial Officer |  | 
|Date: September 27, 2002                         |  | 

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated, by a majority of
the Board of Directors.

|                                                     |  |  |   |  |  |                    |  |  | 
|---------------------------------------------------- |  |  | - |  |  | ------------------ |  |  | 
|/s/ James R. Henderson                               |  |  | ) |  |  |                    |  | 
|                                                     |  |  | ) |  |  |                    |  | 
|James R. Henderson, President, Chief Executive       |  |  | ) |  |  |                    |  | 
|Officer, Principal Executive Officer and Director    |  |  | ) |  |  |                    |  | 
|                                                    
|/s/ Julian Demora                                    |  |  | ) |  |  |                    |  | 
|                                                     |  |  | ) |  |  |                    |  | 
|Julian Demora, Director                              |  |  | ) |  |  |                    |  | 
|                                                    
|/s/ Jesse Krasnow                                    |  |  | ) |  |  |                    |  | 
|                                                     |  |  | ) |  |  |                    |  | 
|Jesse Krasnow, Director                              |  |  | ) |  |  | September 27, 2002
|                                                    
|/s/ Warren Lichtenstein                              |  |  | ) |  |  |                    |  | 
|                                                     |  |  | ) |  |  |                    |  | 
|Warren Lichtenstein, Director                        |  |  | ) |  |  |                    |  | 
|                                                    
|/s/ Merrill A. McPeak                                |  |  | ) |  |  |                    |  | 
|                                                     |  |  | ) |  |  |                    |  | 
|Merrill A. McPeak, Director                          |  |  | ) |  |  |                    |  | 
|                                                    
|/s/ Robert F. Mehmel                                 |  |  | ) |  |  |                    |  | 
|                                                     |  |  | ) |  |  |                    |  | 
|Robert F. Mehmel, Director                           |  |  | ) |  |  |                    |  | 
|                                                    
|/s/ Melissa Van Valkenburgh                          |  |  | ) |  |  |                    |  | 
|                                                     |  |  | ) |  |  |                    |  | 
|Melissa Van Valkenburgh, Principal Financial Officer |  |  | ) |  |  |                    |  | 

Page 46 of 54