Exhibit 13
















                      ENVIRONMENTAL TECTONICS CORPORATION




                                     1999

                          ANNUAL SHAREHOLDERS' REPORT

FINANCIAL REVIEW
($ in thousands, except share and per share data)

<TABLE>
<CAPTION>

Fiscal Year End              1999        1998        1997        1996        1995

<S>                        <C>         <C>         <C>         <C>         <C>
Net sales                  $ 29,225    $ 29,284    $ 21,884    $ 15,580    $ 16,188
Gross profit                 11,672       9,298       5,742       5,206       4,097
Operating income (loss)       4,759       4,208       1,196       1,492        (891)
Net income (loss)             2,170       1,794         (20)        299      (1,405)
Earnings (loss) per common
 share:
  Basic                         .32         .25        (.01)        .05        (.25)
  Diluted                       .29         .23        (.01)        .05        (.25)
Working capital              13,755      11,462      10,334       7,860       9,038
Long-term obligations         4,219       4,356       6,997       5,514       7,133
Total assets                 35,448      22,955      23,095      20,926      20,803
Total stockholders' equity   11,030       8,579       6,409       6,111       5,736
Weighted average common
 shares:
  Basic                   5,861,000   5,981,000   5,930,000   5,870,000   5,748,000
  Diluted                 6,312,000   6,496,000   5,930,000   5,870,000   5,748,000

</TABLE>

All earnings per share and share amounts have been restated to
reflect a 2 for 1 stock split declared on February 25, 1999.  No
cash dividends have ever been paid on the Company's common stock,
and the Company is currently prohibited from declaring any cash
dividends under the terms of its credit facility.
  <PAGE 1>
Management's Discussion and Analysis of
Financial Condition and Results of Operations

Results of Operations

Fiscal 1999 Versus Fiscal 1998

      Certain statements contained herein constitute "forward-
looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995.  Forward-looking statements
include but are not limited to:  statements regarding future
product development, technological advances and market acceptance
of products.  Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company,
or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.  Such factors include, among other
things, general economic and business conditions, competition,
technological advances, political unrest in customer countries,
contract cancellations and other risk factors that are detailed
in this document and in other periodic reports and registration
statements filed by Environmental Tectonics Corporation with the
Securities and Exchange Commission.  All forward-looking
statements included in this document are based on information
available to the company on the date hereof, and the Company
assumes no responsibility to update any such forward-looking
statements.  Accordingly, past results and trends should not be
used by investors to anticipate future results or trends.

      The Company has a net income of $2,170,000 or $.29 per share
(diluted), versus a net income of $1,794,000, or $.23 per share
(diluted) in 1998.  Operating income was $4,759,000, an increase
of $551,000, or 13.1% over 1998.  These increases were primarily
the result of higher gross margins reflecting increased sales of
ATS products.

      Total sales decreased slightly $59,000, .2%, from 1998 as
decreases domestically and to the U.S. Government were only
partially offset by an increase internationally and the addition
of sales from the Company's Polish subsidiary purchased in April,
1998.  Domestic sales decreased $3,640,000, 41.1%, and
represented 17.9% of the Company's total sales, down from 30.2%
in the prior year.  The decrease domestically primarily reflected
reduced industrial sterilizer sales coupled with decreased sales
of the Company's entertainment products.  Sales to the U.S.
Government decreased $1,779,000, 60.6%, and represented 4.0% of
the Company's total sales, down from 10.0% for the prior year.
The decrease in U.S. Government sales primarily reflected the
completion in the prior year of a large chamber project.
International sales, including sales of the Company's Polish
subsidiary, increased $5,360,000, 30.6%, and represented 78.1% of
the Company's total sales.  The increase internationally
primarily resulted from additional progress on two large
<PAGE 2> centrifuge projects including a Centrifuge project for
the United Kingdom Minister of Defence (the "UKMOD").  Sales in
1999 to the UKMOD were approximately $7.0 million, or 24.0%, of
the Company's total sales.  Open orders for the UKMOD constituted
$11.1 million of the Company's sales backlog at February 26,
1999.

      On a segment basis, sales of the Company's Aircrew Training
systems (ATS) products, which create and monitor the
physiological effects of motion (including spatial disorientation
and centrifugal forces) on humans and physical effects on
equipment for medical, training, research and entertainment
markets were $24,465,000 an increase of $2,410,000, or 10.9%,
over 1998.  Sales of these products accounted for 83.7% of ETC's
sales compared to 75% in 1998.  Sales in the Company's other
segment, Industrial Simulation, which designs and produces
chambers that create environments that are used for
sterilization, research and medical applications, decreased
$2,469,000, or 34.2%, and accounted for 16.3% of ETC's total
sales compared to 25% in 1998.  Although the primary reduction
was in sterilizer sales, decreases were evidenced across all
product lines for this group.

      Gross profit increased $2,374,000, or 25.5%.  As a
percentage of sales, gross profit was 39.9%, an increase from
31.8% in 1998.  These increases were attributable to a product
mix shift to higher margin ATS products.

      Operating profit increased $551,000, or 13.1%, compared to
1998.  On a segment basis, ATS has an operating profit of
$5,697,000, an increase of $1,466,000, while the Industrial
Simulation had an operating loss of $89,000 compared to an
operating profit of $691,000 in 1998.  These segment operating
profits were offset, in part, by unallocated corporate expenses
of $849,000, an increase of $135,000, over 1998.

      Selling and administrative expenses increased $1,574,000, or
31.8%, due principally to higher commissions expense on higher
commissionable sales, increased government claim expenses, and
the addition of selling and administrative expenses for the
Company's Polish subsidiary.  As a percentage of sales, selling
and administrative expenses were 22.3% compared to 16.9% in 1998.

      Research and development expenses increased $249,000, or
168.2%, from 1998.  Most of the Company's research efforts, which
were and continue to be a significant cost of its business, are
included in cost of sales for applied research for specific
contracts, as well as research for feasibility and technology
updates.  Capitalized software development costs for 1999 were
$581,000 compared to $395,000 in 1998.  Amortization of software
costs, which was charged to cost of sales, was $651,000 and
$670,000 for 1999 and 1998, respectively.

      Interest expense was down $120,000, 9.6%, from 1998
reflecting a lower average interest rate.  Letter of credit and
<PAGE 3> other expenses decreased $16,000 principally due to
decreased bank charges.

      The Company's effective tax rate remained unchanged from the
prior year and approximated the statutory rate.

Fiscal 1998 Versus Fiscal 1997

      The Company had net income of $1,794,000, or $.47 per share,
compared to a net loss of $20,000, or $.01 per share, in 1997.
Operating income was $4,208,000, an increase of $3,012,000, or
252%, over 1997.  These increases were primarily the result of
increased sales which were $29,284,000, an increase of $7.4
million, or 34%, over 1997.

      Domestic sales increased $4,477,000, or 102%, over 1997, and
accounted for 30% of the Company's total sales, an increase from
20% in 1997.  This increase was due to the introduction of the
Company's proprietary motion-based technology into the
entertainment marketplace, as well as a $1,308,000 increase in
sales of industrial sterilizers.  Sales to the U.S. Government,
principally for work on two large altitude chambers and a
continuation of our contracted operator maintenance contracts on
selected aircrew training devices, increased $854,000, or 41%,
and accounted for 10% of ETC's total sales, the same percentages
as 1997.  Sales to international customers, principally
government agencies, increased $2,068,000, or 13%, over 1997, and
accounted for 60% of the Company's total sales, a decrease from
70% in 1997.  The increase in international sales was due
principally to continued work on a centrifuge for Japan and a
multipurpose aircraft trainer for the UKMOD.  Sales in 1998 to
UKMOD were approximately $9,226,000, or 32%, of the Company's
total sales.  Open orders for UKMOD accounted for 59% of the
Company's sales backlog at February 27, 1998.

      On a segment basis, sales of the Company's Aircrew Training
Systems (ATS) products, which create and monitor the
physiological effects of motion (including spatial disorientation
and centrifugal forces) on humans and physical effects on
equipment for medical, training, research and entertainment
markets were $22,055,000, an increase of $8,808,000, or 66%, over
1997.  Sales of these products accounted for 75% of ETC's sales
compared to 61% in 1997.  Sales in the Company's other segment,
Process Simulation, which designs and produces chambers that
create environments that are used for sterilization, research and
medical applications, decreased $1,408,000, or 16%, and accounted
for 25% of ETC's total sales compared to 39% in 1997.  This
reduction was due principally to international sales of the
Company's sterilizers and environmental chambers, which were
$2,533,000 lower in 1998 compared to 1997.

      Gross profit increased $3,556,000, or 62%.  As a percentage
of sales, gross profit was 32%, an increase from 26% in 1997.
These increases were attributable, in part, to the higher sales
<PAGE 4> volume which improved plant capacity utilization, as
well as an increase in sales of higher-margined ATS products.

      Operating profit increased $3,012,000, or 252%, compared to
1997.  On a segment basis, ATS had an operating profit of
$4,321,000, an increase of 97%, while the Process Simulation had
an operating profit of $691,000 compared to an operating loss of
$304,000 in 1997.  These segment operating profits were offset,
in part, by unallocated corporate expenses of $714,000, an
increase of $61,000, or 9%, over 1997.

      Selling and administrative expenses increased $563,000, or
13%, due principally to higher variable costs related to the
higher sales volume, such as commissions and travel expenses.  As
a percentage of sales, selling and administrative expenses were
17% compared to 20% in 1997.  This improvement was due, in part,
to the fixed administrative costs being spread over the higher
sales total, as well as a reduction in accounting and legal fees.

      Research and development expenses decreased $19,000, or 11%,
from 1997.  The Company's research efforts, which were and
continue to be a significant cost of its business, are included
in cost of sales for applied research for specific contracts, as
well as research and development for basic research for
feasibility and technology updates.  Capitalized software
development costs for 1998, were $395,000 compared to $494,000 in
1997.  Amortization of software costs, which were charged to cost
of sales, were $670,000 and $681,000 for 1998 and 1997,
respectively.

      Interest expense was virtually unchanged from 1998.  Other
expense increased during 1998, principally due to foreign
exchange charges.

      The Company's provision for taxes approximates the statutory
rate.

Liquidity and Capital Resources

      At February 26, 1999, the Company had a credit agreement
with a bank, which provided a credit facility of $10 million.
This agreement expires on May 31, 1999, although the Bank has
indicated its intention to extend the agreement for at least
1 year.  Substantially all of the Company's short-term financing
is provided by this bank.  At February 26, 1999, the Company had
$7,812,000 available under the credit agreement.

      During fiscal 1999, the Company generated $7,769,000 of cash
from operating activities.  This was primarily the result of net
income, non cash charges, an increase in billings in excess of
costs and estimated earnings on uncompleted long-term contracts
and customer deposits.  These cash sources were partially offset
by an increase in accounts receivable and costs and estimated
earnings in excess of billings on uncompleted long-term
contracts.  Generally speaking, the net positive generation of
<PAGE 5> cash from operations reflected the very favorable
payment terms contained in the large Aeromedical equipment order
booked in February 1999.

      Investing activities used $1,088,000 including the net cash
impact of purchasing the Company's Polish subsidiary in April,
1998.

      Financing activities were a net use of $1,562,000 of cash.
This included paydown to zero of the Company's cash borrowings
under its credit facility, payment of dividends on preferred
stock and repayment of related party notes.  A partial offset was
positive cash flow from a loan, additional paid-in-capital, and
minority interest associated with the aforementioned Polish
acquisition.

      The company believes that cash generated from operating
activities as well as available borrowing under the Credit
Agreement will be sufficient to meet its future obligations.

      In reference to the Company's outstanding claim with the
U.S. Government, to the extent the Company is unsuccessful in
further recovery of contract costs, such an event could have a
material adverse effect on the Company's liquidity and results of
operations.  Historically, the Company has had good experience in
that recoveries have exceeded claims (see Note 3 of Notes to
Consolidated Financial Statements).

Year 2000 Disclosure

      The majority of the Company's information technology and
non-information technology systems are Year 2000 compliant.  The
Company presently anticipates that the remainder of the Company's
systems will be Year 2000 compliant by June 1999.  The Company is
in the process of investigating its supply-chain.

      The Company has expended $6,000 in the twelve-month period
ended February 26, 1999 with respect to Year 2000 compliance, and
expects to incur approximately $89,000 of additional expenses to
complete the compliance process.

      The Company's most likely worst case Year 2000 scenario
would be to lose the Company's accounting and network
applications and PC's in the Company's main facility located in
Southampton, Pennsylvania.  If this event occurs, the Company
will be able to continue its manufacturing activities and would
manually proceed to perform other tasks and activities.  The
Company has a written contingency plan to address potential Year
2000 problems.
  <PAGE 6>
Market for the Registrant's Common Stock and Related Security
Holder Matters

      The Company's Common Stock (the Common Stock) is traded on
the American Stock Exchange under the symbol ETC.  As of May 17,
1999, the Company had 335 shareholders of record.

      The following table sets forth the quarterly ranges of high
and low sale prices, and the closing sale price, for shares of
the Common Stock for the periods indicated.  Such prices
represent quotations between dealers and do not include mark-ups,
mark-downs or commissions, and may not necessarily represent
actual transactions.

                                     Sale Prices       Closing
                                  High        Low     Sale Price
1999

First Quarter                    $11-1/4     $8-1/4     $10-1/2

Second Quarter                    12-7/8      9-1/8       9-3/4

Third Quarter                     11-3/4      6-5/8      11

Fourth Quarter                    17          9-1/16     16-1/8

1998

First Quarter                    $ 9-3/8     $6-1/2     $ 9-5/16

Second Quarter                    10-1/8      7-7/8       8-1/2

Third Quarter                     11-3/4      8-1/2       9-1/8

Fourth Quarter                    10          7-3/8       8-3/4


      The Company has not paid any cash dividends on the Common
Stock in the past and does not anticipate that any cash dividends
will be declared or paid in the foreseeable future.  The
Company's current line of credit facility prohibits the payment
of any dividends by the Company without the lender's prior
written consent.

Backlog

      The Company's sales backlog at February 26, 1999 and
February 27, 1998, for work to be performed and revenue to be
recognized under written agreements after such dates, was
approximately $32,141,000 and $27,523,000, respectively.  In
addition, the Company's training and maintenance contracts
backlog at February 26, 1999 and February 27, 1998, for work to
be performed and revenue to be recognized after that date under
written agreements, was approximately $1,311,000 and $2,925,000,
respectively.  Of the 1999 backlog, approximately $26,380,000 is
<PAGE 7> under contracts for ATS and maintenance support.
Approximately 83% of the 1999 backlog is expected to be completed
prior to February 25, 2000.
  <PAGE 8>
              Report of Independent Certified Public Accountants


Board of Directors
Environmental Tectonics Corporation

      We have audited the accompanying consolidated balance sheets
of Environmental Tectonics Corporation and Subsidiary as of
February 26, 1999 and February 27, 1998, and the related
consolidated statements of operations, changes in stockholders'
equity and cash flows for the years then ended.  These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with generally
accepted auditing standards.  Those standards 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.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.

      As discussed in Note 1 to the consolidated financial
statements, the Company has recorded receivables in the amount of
$4.4 million related to claims made to or against the United
States government for contract costs incurred through
February 26, 1999.  The total net claims amount made is
approximately $12 million based on costs incurred through
February 26, 1999, and is subject to negotiation, arbitration and
audit by the United States government.

      In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
consolidated financial position of Environmental Tectonics
Corporation and Subsidiary as of February 26, 1999 and
February 27, 1998, and the consolidated results of their
operations and cash flows for the years then ended, in conformity
with generally accepted accounting principles.



/s/ Grant Thornton LLP

Philadelphia, Pennsylvania
April 30, 1999
  <PAGE 9>
Consolidated Balance Sheets
($ in thousands, except share data)

<TABLE>
<CAPTION>
                                                  February 26,    February 27,
                                                      1999            1998
<S>                                               <C>             <C>
ASSETS
Cash and cash equivalents                           $ 5,344          $   225
Cash equivalents restricted for letters of credit        47                5
Accounts receivable, net                              9,656            8,448
Costs and estimated earnings in excess of
  billings on uncompleted long-term contracts        10,416            5,651
Inventories                                           3,118            3,058
Deferred tax asset                                    1,136              770
Prepaid expenses and other current assets               787              283
     Total current assets                            30,504           18,450

Property, plant and equipment, net                    2,842            2,837
Software development costs, net of accumulated
  amortization of $ 4,619 and $3,914 in 1999
  and 1998, respectively                              1,137            1,155
Other assets                                            965              513

     Total assets                                   $35,448          $22,955

LIABILITIES
Current portion of long-term obligations            $   121          $   148
Convertible notes payable - related parties               -              800
Accounts payable - trade                              1,554            1,424
Billings in excess of costs and estimated
  earnings on uncompleted long-term contracts         6,775            1,145
Customer deposits                                     5,696            1,373
Accrued income taxes                                    920              984
Other accrued liabilities                             1,683            1,114
     Total current liabilities                       16,749            6,988

Long-term obligations, less current portion:
  Credit facility payable to banks                        -              467
  Subordinated debt                                   4,124            3,730
  Other                                                  95              159
                                                      4,219            4,356
Deferred tax liability                                  702              702

     Total liabilities                               21,670           12,046

Redeemable cumulative convertible preferred
 stock, $100 par and redemption value:
 25,000 shares authorized; 25,000 shares
 issued and outstanding                               2,372            2,330

Minority Interest                                       376                -

STOCKHOLDERS' EQUITY
Common stock - authorized 10,000,000 shares,
 $.10 par value; 3,083,206 and 3,006,596 shares
 issued and outstanding in 1999 and 1998,
 respectively                                           308              300
Capital contributed in excess of par value of
 common stock                                         3,240            2,671
<PAGE 10>
Accumulated other comprehensive income                   21                -
Retained earnings                                     7,461            5,608

     Total stockholders' equity                      11,030            8,579

     Total liabilities and stockholders' equity     $35,448          $22,955

</TABLE>

The accompanying notes are an integral part of the consolidated
financial statements.
  <PAGE 11>
Consolidated Statements of Operations
($ in thousands, except share data)

<TABLE>
<CAPTION>
                                                  Year Ended      Year Ended
                                                  February 26,    February 27,
                                                      1999            1998
<S>                                               <C>             <C>
Net sales                                         $   29,225      $   29,284

Cost of goods sold                                    17,553          19,986

     Gross profit                                     11,672           9,298

Operating expenses:
  Selling and administrative                           6,516           4,942
  Research and development                               397             148

                                                       6,913           5,090

     Operating income                                  4,759           4,208

Other expenses:
  Interest expense                                     1,124           1,244
  Letter of credit fees                                   26              58
  Other, net                                             162             146

                                                       1,312           1,448

     Income before provision for income taxes
       and minority interest                           3,447           2,760

Provision for income taxes                             1,201             966

     Income before minority interest              $    2,246      $    1,794

Income attributable to minority interest                  76               -

     Net income                                   $    2,170      $    1,794

Per share information
  Earnings per common share:
     Basic                                        $      .32      $      .25
     Diluted                                      $      .29      $      .23

Income available to common stockholders           $    1,853      $    1,502

  Weighted average common shares:
     Basic                                         5,861,000       5,981,000
     Diluted                                       6,312,000       6,496,000

</TABLE>


The accompanying notes are an integral part of the consolidated
financial statements.
  <PAGE 12>
Consolidated Statements of Changes in Stockholders' Equity
($ in thousands, except share data)

          For the years ended February 26, 1999 and February 27, 1998

<TABLE>
<CAPTION>
                                                               Capital
                                                             contributed   Accumulated
                                                             in excess of    other
                                                             par value of    compre-                  Total
                                          Common stock          common       hensive    Retained   stockholders'
                                      Shares        Amount       stock       income     earnings      equity
                                     --------     ---------  ------------  -----------  --------   -------------
<S>                                 <C>           <C>        <C>           <C>          <C>        <C>
Balance, February 28, 1997          $2,963,083      $  296      $ 2,007      $    -      $ 4,106      $ 6,409

Net income for the year                      -           -            -           -        1,794        1,794
Value of warrants issued in
  connection with issuance of
  subordinated debt                          -           -          499           -            -          499
Accretion of preferred stock                 -           -            -           -          (38)         (38)
Dividends on preferred stock                 -           -            -           -         (254)        (254)
Shares issued in connection with
  employee stock purchase and
  stock option plans                    41,550           3          146           -            -          149
Shares issued in connection with
  employee stock award                   1,963           1           19           -            -           20
                                    ----------      ------      -------      ------      -------      -------
Balance, February 27, 1998           3,006,596         300        2,671           -        5,608        8,579

Net income for the year                                                           -        2,170        2,170
Stock issued in connection with
  with acquisition                      55,000           6          489           -                       495
Accretion of preferred stock                 -           -            -           -          (42)         (42)
Dividends on preferred stock                 -           -            -           -         (275)        (275)
Shares issued in connection with
  employee stock purchase and
  stock option plans                    21,610           2           80           -            -           82
Other comprehensive income                   -           -            -          21            -           21
                                    ----------      ------      -------      ------      -------      -------

Balance, February 26, 1999          $3,083,206      $  308      $ 3,240      $   21      $ 7,461      $11,030
                                    ==========      ======      =======      ======      =======      =======
</TABLE>


The accompanying notes are an integral part of the consolidated
financial statements.
  <PAGE 13>
Consolidated Statements of Cash Flows
($ in thousands)

<TABLE>
<CAPTION>
                                                  Year Ended      Year Ended
                                                  February 26,    February 27,
                                                      1999            1998
<S>                                               <C>             <C>
Cash flows from operating activities:
  Net income                                        $  2,170        $  1,794
  Adjustments to reconcile net income to net
    cash provided by operating activities
    Depreciation and amortization                      1,642           1,463
    Increase (decrease) in allowance for
      accounts receivable and inventory                 (409)            527
    Minority interest                                     76               -
    Changes in operating assets and liabilities:
      Accounts receivable                             (1,202)          2,762
      Costs and estimated earnings in excess of
        billings on uncompleted long-term contracts   (4,765)         (2,306)
      Inventories                                        623            (882)
      Prepaid expenses and other current assets         (530)            (44)
      Other assets                                        12             (35)
    Increase (decrease) in liabilities:
      Accounts payable                                   112            (375)
      Billings in excess of costs and estimated
        earnings on uncompleted long-term contracts    5,630          (1,543)
      Customer deposits                                4,323             264
      Accrued income taxes                               (64)            713
      Other accrued liabilities                          637            (414)
      Payments under settlement agreements              (120)           (120)
    Decrease in deferred income taxes                   (366)           (157)

        Net cash provided by operating activities      7,769           1,647

Cash flows from investing activities:
  Acquisition of equipment                              (567)           (670)
  Software development costs capitalized                (581)           (395)
  Purchase of subsidiary, net of cash acquired            60               -

        Net cash used in investing activities         (1,088)         (1,065)

Cash flows from financing activities:
  Net payments under credit facility                    (467)         (6,247)
  Net proceeds from subordinated debt                      -           3,730
  Net proceeds from preferred stock                        -           2,292
  Payment of dividends on preferred stock               (275)           (254)
  Deferred financing costs                                 -            (876)
  (Increase) decrease in cash equivalents
    restricted for letters of credit                     (32)            650
  Decrease in notes payable - related party             (800)           (500)
  Net decrease in other long-term obligations            (70)             (9)
  Proceeds from issuance of common stock/warrants         82             668

        Net cash used in financing activities         (1,562)           (546)

        Net increase in cash and cash equivalents      5,119              36

Cash and cash equivalents at beginning of year           225             189

Cash and cash equivalents at end of year            $  5,344        $    225

Supplemental schedule of cash flow information:  <PAGE 14>
  Interest paid                                     $    925        $  1,123
  Income taxes paid                                    1,357             434

Supplemental information on noncash operating
and investing activities:
  The Company reclassed $-0- and $158 of
    inventory to property, plant and equipment
    during the years ended February 26, 1999
    and February 27, 1998, respectively.
</TABLE>


The accompanying notes are an integral part of the consolidated
financial statements.
  <PAGE 15>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except share data)


1.    Summary of Significant Accounting Policies:

      Nature of Business

      Environmental Tectonics Corporation (ETC or the Company) is
primarily engaged in the development, marketing and manufacturing
of Aircrew Training Systems (ATS) and Industrial Simulation
equipment.  The Company utilizes its internally developed
software systems in virtually all of its products.  ETC focuses
on software enhancements, product extensions, new product
development and new marketplace applications.  Sales of ATS
products are made principally to U.S. and foreign government
agencies and to the entertainment market.  Sales of Industrial
Simulation equipment, which includes sterilizers, environmental
systems, and hypo/hyperbaric equipment are made for commercial
and governmental agencies worldwide.

      Stock Split:  On February 25, 1999, the Board of Directors
declared a 2-for-1 stock split for stockholders of record on
May 17, 1999.  All earnings per share and share amounts in the
financial statements for all years presented, have been restated
to reflect the 2-for-1 split.

      Principles of Consolidation:

      The consolidated financial statements include the accounts
of ETC, its wholly owned subsidiary, ETC International
Corporation and its 65% owned subsidiary, ETC-PZL Aerospace
Industries SP. Z 0.0.  All material intercompany accounts and
transactions have been eliminated.  The Company's fiscal year is
the 52- or 53-week annual accounting period ending the last
Friday in February.

      Use of Estimates:

      In preparing financial statements in conformity with
generally accepted accounting principles, management is required
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 revenues and expenses during the reporting period.  Actual
results could differ from those estimates.  Significant estimates
are made for revenue recognition under the percentage of
completion method (see Note 1, Revenue Recognition), claims
receivable, inventory, and computer software costs.

      The Company has recorded receivables in the amount of
$4.4 million for claims made to or against the United States
government for contract costs incurred through February 26, 1999.
The total net claims amount made is approximately $12.0 million
<PAGE 16> based on costs incurred through February 26, 1999, and
is subject to negotiation, arbitration and audit by the United
States government.

      Revenue Recognition:

      Revenue is recognized on long-term contracts utilizing the
percentage of completion method based on costs incurred as a
percentage of estimated total costs.  Revenue recognized on
uncompleted long-term contracts in excess of amounts billed to
customers is reflected as an asset.  Amounts billed to customers
in excess of revenue recognized on uncompleted long-term
contracts are reflected as a liability.  When it is estimated
that a contract will result in a loss, the entire amount of the
loss is accrued.  The effect of revisions in cost and profit
estimates for long-term contracts is reflected in the accounting
period in which the facts requiring the revisions become known.
Contract progress billings are based upon contract provisions for
customer advance payments, contract costs incurred, and
completion of specified contract objectives.  Contracts may
provide for customer retainage of a portion of amounts billed
until contract completion.  Retainage is generally due within one
year of completion of the contract.  Revenue for contracts under
$100 or to be completed in less than one year, and revenue on
parts and services, are recognized as shipped.  Revenue for
service contracts is recognized ratably over the life of the
contract.  Related material costs are expensed as incurred.

      Cash and Cash Equivalents:

      Cash and cash equivalents include short-term deposits at
market interest rates with original maturities of three months or
less.  The Company maintains cash balances at several financial
institutions located in the Northeast.  Accounts in each
institution are insured by the Federal Deposit Insurance
Corporation up to $100.  Uninsured balances aggregate
$4.7 million at February 26, 1999.

      Inventories:

      Inventories are valued at the lower of cost or market.  Cost
is determined principally by the first-in, first-out method.  The
costs of finished goods and work-in-process inventories include
material, direct engineering, manufacturing labor, and overhead
components.  The Company periodically reviews the net realizable
value of the inventory and, if necessary, writes down the
recorded costs.

      Depreciation of Property, Plant and Equipment:

      Property, plant and equipment are depreciated over their
estimated useful lives by the straight-line method for financial
reporting purposes.  Accelerated depreciation methods are used
for tax purposes.  Upon sale or retirement of property, plant and
equipment, the costs and related accumulated depreciation are
<PAGE 17> eliminated from the accounts.  Any resulting gains or
losses are included in the determination of net income.

      Amortization of Goodwill:

      The Company amortizes costs in excess of fair values of net
assets of the businesses acquired using the straight-line method
over a period not to exceed 20 years.  The Company periodically
reviews the value of its goodwill to determine if an impairment
has occurred.

      Goodwill of $662 was recorded for the Company's purchase of
ETC-PZL Aerospace Industries, Ltd.  Amortization expense was $25
in fiscal 1999 and accumulated amortization as of February 26,
1999 was $25.

      Amortization of Capitalized Software Development Costs:

      The Company capitalizes the qualifying costs of developing
software contained in certain products.  Capitalization of costs
requires that technological feasibility has been established.
When the software is fully documented and tested, capitalization
of development costs cease and amortization commences over a
period ranging from 36 to 60 months (dependent upon the life of
the product) on a straight-line basis which, at a minimum,
approximates estimated sales.  Realization of capitalized
software costs is subject to the Company's ability to market the
related product in the future and generate cash flows to support
future operations.  Capitalized software costs and related
amortization totalled $581 and $651, respectively, for the year
ended February 26, 1999.  Capitalized software costs and related
amortization totalled $395 and $670, respectively, for the year
ended February 27, 1998.

      Amortization of Deferred Financing Costs:

      Capitalized costs relating to the recapitalization of the
Company are amortized over the term of the credit facility.
Amortization expense relating to deferred financing costs was
$181 and $241 in 1999 and 1998, respectively (see note 7).

      Income Taxes:

      The Company accounts for income taxes using the liability
method, which reflects the impact of temporary differences
between values recorded for assets and liabilities for financial
reporting purposes and values utilized for measurement in
accordance with tax laws.
  <PAGE 18>
      Long-Lived Assets:

      The Company accounts for stock options in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," which provides guidance on when
to recognize and how to measure impairment losses of long-lived
assets and certain identifiable intangibles, and how to value
long-lived assets to be disposed of.  The adoption of SFAS
No. 121 had no material effect on the Company's consolidated
financial position or results of operations.

      Stock Options:

      The Company accounts for stock options in accordance with
SFAS No. 123, "Accounting for Stock-Based Compensation," which
contains a fair value-based method for valuing stock-based
compensation that entities may use, which measures compensation
cost at the grant date based on the fair value of the award.
Compensation is then recognized over the service period which is
usually the vesting period.  Alternatively, the standard permits
entities to continue accounting for employee stock options and
similar instruments under Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees."
Entities that continue to account for stock options using APB
Opinion No. 25 are required to make pro forma disclosures of net
income and earnings per share, as if the fair value-based method
of accounting defined in SFAS No. 123 had been applied (see
note 12).  The Company's Incentive Stock Option Plan is accounted
for under APB Opinion No. 25.

      Advertising Costs:

      The Company expenses advertising costs as incurred.
Advertising expense was $294 and $210 for the years ended
February 26, 1999 and February 27, 1998, respectively.

      Earnings Per Common Share:

      The Company has adopted SFAS No. 128, "Earnings Per Share,"
which is effective for financial statements issued after
December 15, 1997.  The new standard eliminates primary and fully
diluted earnings per share and requires presentation of basic and
diluted earnings per share together with disclosure of how the
per share amounts were computed.  Basic earnings per share
excludes dilution and is computed by dividing income available to
common shareholders by the weighted average common shares
outstanding for the period.  Diluted earnings per share reflects
the potential dilution that could occur if securities or other
contracts to issue common stock were exercised and converted into
common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.

      The following table illustrates the reconciliation of the
numerators and denominators of the basic and diluted earnings per
<PAGE 19> share computations.  All earnings per share and share
amounts have been restated to reflect a 2 for 1 stock split
declared February 25, 1999.

<TABLE>
<CAPTION>
                                          Year ended February 26, 1999
                                                     Weighted
                                                     average     Per share
                                       Income        shares        amount
                                     (numerator)  (denominator)
<S>                                  <C>          <C>            <C>
Net income                             $2,170
Less preferred stock dividends           (275)
Less accretion of preferred stock         (42)

Basic earnings per share
  Income available to common stock-
    holders                            $1,853       5,861,377      $ .32

Effective of dilutive securities
  Stock options                                        38,641
  Stock warrants                                      412,007

Diluted earnings per share
  Income available to common stock-
    holders plus  effect of dilutive
    securities                         $1,853       6,312,025      $ .29

</TABLE>

      There were conversion provisions of preferred stock totaling
666,666 shares of common stock which were not included in the
computation of diluted earnings per share because the effect of
assumed conversions was antidilutive.  These conversion
provisions were still outstanding at February 26, 1999 (see also
footnote 15).
  <PAGE 20>
<TABLE>
<CAPTION>
                                          Year ended February 27, 1998
                                                     Weighted
                                                     average     Per share
                                       Income        shares        amount
                                     (numerator)  (denominator)
<S>                                  <C>          <C>            <C>
Net income                             $1,794
Less preferred stock dividends           (254)
Less accretion of preferred stock         (38)

Basic earnings per share
  Income available to common stock-
    holders                            $1,502       5,980,688      $ .25

Effective of dilutive securities
  Stock options                                        70,634
  Stock warrants                                      444,289

Diluted earnings per share
  Income available to common stock-
    holders plus  effect of dilutive
    securities                         $1,502       6,495,611      $ .23

</TABLE>

      There were conversion provisions of convertible notes
payable and preferred stock totalling 800,000 shares of common
stock which were not included in the computation of diluted
earnings per share because the effect of assumed conversions was
antidilutive.  These conversion provisions were still outstanding
at February 26, 1999.

      Reporting Comprehensive Income:

      In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income."  SFAS No. 130 establishes standards to
provide prominent disclosure of comprehensive income items.
Comprehensive income is the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources.  SFAS No. 130 is effective
for all periods beginning after December 15, 1997.  Other
comprehensive income consists of foreign currency translation
adjustments.  The adoption of SFAS No. 130 did not have a
material impact on the Company's consolidated financial position
or results of operations.

      Business Segment Presentation:

      In June 1997, the FASB issued SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information."  SFAS
No. 131 requires that public business enterprises report certain
information about operating segments in complete sets of
financial statements of the enterprise and in condensed financial
statements of interim periods issued to shareholders.  It also
requires that public business enterprises report certain
information about their products and services, the geographic
areas in which they operate, and their major customers.  SFAS
<PAGE 21> No. 131 is effective for all periods beginning after
December 15, 1997.  The adoption of SFAS No. 131 had no impact on
the Company's consolidated financial position or results of
operations.

      Reclassifications:

      Certain reclassifications have been made to the 1998
financial statements to conform with the 1999 presentation.

2.    Acquisition of ETC-PZL Aerospace Industries SP. Z 0.0.

      On April 21, 1998, ETC acquired a 65% ownership of MP-PZL
Aerospace Industries, Ltd. ("MP-PZL"), a simulation and advanced
training device manufacturing company located in Warsaw, Poland
for $375 in cash, an 8% interest-only three-year note payable for
$350 and 55,000 shares of ETC's common stock amounting to $495.
MP-PZL was subsequently renamed ETC-PZL Aerospace Industries,
Ltd. ("ETC-PZL").  ETC's cost for this acquisition was $1,220 and
has been recorded in the accompanying balance sheet under the
purchase method of accounting for business combinations.  In
connection with the acquisition, the Company has recorded
goodwill of $662 and a minority interest of $300.

      ETC-PZL's fiscal period ends December 31, 1998.  The results
of ETC-PZL for the period May 1, 1998 through December 31, 1998
have been included in ETC's results of operations for the twelve
months ended February 26, 1999.  On a pro forma basis, had the
Company consolidated the results of ETC-PZL in the prior fiscal
period, the following comparisons would result:

<TABLE>
<CAPTION>
                                                Twelve months
                                                    ended
                                 February 26,    February 27,    February 27,
                                     1999            1998            1998
                                                (as reported)    (pro forma)
<S>                               <C>            <C>             <C>
Net sales                         $   29,225     $   29,284      $   31,391

Gross profit                          11,672          9,298          9,944

Operating income                       4,759          4,208          4,521

Net income                             2,170          1,794          1,922

Per share information
Income available to common
  shareholders                         1,853          1,502          1,603
Income per share: basic                 0.32           0.25           0.27
Income per share: diluted               0.29           0.23           0.26
Number of shares: basic            5,861,000      5,981,000      5,981,000
Number of shares: diluted          6,312,000      6,496,000      6,496,000
</TABLE>

  <PAGE 22>
3.    Accounts Receivable:

      The components of accounts receivable at February 26, 1999
and February 27, 1998, are as follows:

                                        1999        1998

U.S. Government receivables billed
  and unbilled contract costs
  subject to negotiation               $ 4,529     $ 4,563
U.S. commercial receivables billed         598       1,071
International receivables billed         4,914       3,193
                                        10,041       8,827
Less allowance for doubtful accounts      (385)       (379)

                                       $ 9,656     $ 8,448


      U.S. Government receivables billed and unbilled contract
costs subject to negotiation:

      Unbilled contract costs subject to negotiation represent
claims made or to be made against the U.S. Government under a
contract for a centrifuge.  These costs were recorded during
fiscal years 1994, 1995 and 1998.  The Company has recorded
claims, amounting to $2.75 million, including $150 recorded in
the first quarter of fiscal 1998, to the extent of contract costs
incurred.  These costs have been incurred in connection with U.S.
Government caused delays, errors in specifications and designs,
and other unanticipated causes, and may not be received in full
during fiscal 2000.  In accordance with generally accepted
accounting principles, revenue recorded by the Company from a
claim does not exceed the incurred contract costs related to the
claim.  The Company currently has approximately $12.0 million in
claims filed with the U.S. Government.  The U.S. Government has
responded to the claims with either denials or deemed denials
that the Company has appealed.  In February 1999, the U.S.
Government made an unsolicited offer for settlement which the
Company deemed inadequate.  Such claims are subject to
negotiation and audit by the U.S. Government.

      In November 1996, the Company invoiced the balance due under
a contract with the U.S. Government.  At February 26, 1999,
approximately $1.6 million was included in U.S. Government
receivables.  Collectibility of these amounts may be dependent
upon the resolution of the above claims.

      International receivables billed:

      International receivables billed included $0.9 million
(February 26, 1999) and $1.8 million (February 27, 1998) related
to a certain contract with the Royal Thai Air Force.

      In October 1993, the Company was notified by the Royal Thai
Air Force (RTAF) that the RTAF was terminating a certain
<PAGE 23> $4.6 million simulator contract with the Company.
Although the Company had performed in excess of 90% of the
contract, the RTAF alleged a failure to completely perform.  In
connection with the termination, the RTAF made a call on a $229
performance bond, as well as a draw on an approximately
$1.1 million advance payment letter of credit.  Work under this
contract had stopped while under arbitration, but on October 1,
1996, the Thai Trade Arbitration Counsel rendered its decision
under which the contract was reinstated in full and the Company
was given a period of nine months to complete the remainder of
the work.  Except as noted in the award, the rights and
obligations of the parties remain as per the original contract
including the potential invoking of penalties or termination of
the contract for delay.  On December 22, 1997, the Company
successfully performed acceptance testing and the unit passed
with no discrepancy reports.  Although the contract was not
completed in the time allotted, the Company has requested an
extension on the completion time due to various extenuating
circumstances, including allowable "force majeure" events.  The
balance due on the contract is still under review.  However, the
Company is not able to determine what, if any, impact the
extended completion period and the current economic condition in
Thailand will have upon the receipt of final payment.

4.    Costs and Estimated Earnings on Uncompleted Contracts:

      The following is a summary of long-term contracts in
progress at February 26, 1999 and February 27, 1998:

<TABLE>
<CAPTION>
                                                         1999       1998
<S>                                                     <C>        <C>
Costs incurred on uncompleted long-term contracts       $24,926    $23,420
Estimated earnings                                       18,529     10,027
                                                         43,455     33,447
Less billings to date                                   (39,814)   (28,941)

                                                        $ 3,641    $ 4,506
</TABLE>


<TABLE>
<CAPTION>
                                                         1999       1998
<S>                                                     <C>        <C>
Included in accompanying balance sheets
  under the following captions:
    Costs and estimated earnings in excess of billings
      on uncompleted long-term contracts                $10,416    $ 5,651
    Billings in excess of costs and estimated earnings
      on uncompleted long-term contracts                  6,775     (1,145)

                                                        $ 3,641    $ 4,506
</TABLE>

      Included in billings in excess of costs and estimated
earnings on uncompleted long-term contracts is a provision for
<PAGE 24> anticipated losses on contracts of $206 and $198 in
1999 and 1998, respectively.

5.    Inventories:

      Inventories consist of the following:

                                      Raw      Work in
                                    material   process     Total

February 26, 1999                    $  388     $2,730     $3,118
February 27, 1998                       404      2,654      3,058


      Inventory is presented net of an allowance for obsolescence
of $625 and $1,040 in 1999 and 1998, respectively.

6.    Property, Plant and Equipment:

      The following is a summary of property, plant and equipment,
at cost, and estimated useful lives at February 26, 1999 and
February 27, 1998:

<TABLE>
<CAPTION>
                                                               Estimated
                                                                 useful
                                         1999        1998        lives
<S>                                    <C>        <C>          <C>
Land                                   $   100     $   100
Building and building additions          1,811       1,811      40 years
Machinery and equipment                  6,652       6,084     3-5 years
Office furniture and equipment             956         759      10 years
Building improvements                      850         812    5-10 years

                                        10,369       9,566
Less accumulated depreciation           (7,527)     (6,729)

  Property, plant and equipment, net   $ 2,842     $ 2,837

</TABLE>


      Depreciation expense for the years ended February 26, 1999
and February 27, 1998, was $ 707 and $482, respectively.

7.    Long-Term Obligation and Credit Arrangements:

      Long-term obligations at February 26, 1999 and February 27,
1998, consist of the following:

<TABLE>
<CAPTION>
                                            1999             1998
<S>                                       <C>              <C>
Credit facility payable to banks          $     -          $   467
Subordinated debt, net                      4,124            3,730
Products liability settlement (net of
  unamortized discount of $71 and $105  <PAGE 25>
  in 1999 and 1998, respectively, based
  on imputed rate of 11%)                     134              220
Term loans payable accruing interest at
  between 9% and 9.9% collateralized by
  priority liens on certain equipment          82               87
                                            4,340            4,504
Less current portion                         (121)            (148)

                                          $ 4,219          $ 4,356
</TABLE>


      The amounts of future long-term obligations maturing in each
of the next five fiscal years are as follows:

      2000                                   $   159
      2001                                       119
      2002                                       359
      2003                                         -
      2004 and thereafter                      4,000

      Total future obligations                 4,637
      Unamortized discounts or financing
        cost associated with obligations        (297)

                                             $ 4,340


      The approximate average loan balance, maximum aggregate
borrowings outstanding at any month-end payable under the credit
facility and subordinated debt during the fiscal years, and
weighted average interest rate computed by the days outstanding
method as of February 26, 1999 and February 27, 1998, are as
follows:

<TABLE>
<CAPTION>
                                            1999             1998
<S>                                       <C>              <C>

Approximate average loan balance          $ 4,578          $ 3,024
Maximum aggregate                         $ 7,000          $ 5,134
Weighted average interest rate               7.87%            8.37%
</TABLE>


      Interest is charged on direct borrowings at the bank's prime
rate or adjusted LIBOR in 1999 and 1998.  The interest rates were
7.5% and 8.25% at February 26, 1999 and February 27, 1998,
respectively.

      The Company's letter of credit limit is $5.0 million,
provided that the cumulative of all outstanding trade letters of
credit does not exceed $2.5 million.  The balances outstanding
under these provisions at February 26, 1999, were $2.2 million.
Fees on letters of credit outstanding was 1.5% at February 26,
1999 and February 27, 1998, respectively.
  <PAGE 26>
      Recapitalization:

      On March 27, 1997, the Company entered into a revolving
credit agreement (the Credit Agreement) with a new financial
institution, establishing a credit facility of $10 million.  The
Credit Agreement is collateralized by substantially all of the
Company's assets.  The Company is prohibited from declaring any
cash dividends under the terms of the Credit Agreement.  This
facility bears interest at the bank's prime lending rate or
adjusted LIBOR and expires on May 31, 1999.  A commitment fee of
0.2% is charged for unused available funds.  The credit facility
includes certain covenants related to, among other things,
prohibitions on incurring additional debt, change in ownership
of certain officers, payment of dividends and maintenance, on a
quarterly basis, of a current ratio not less than 1.0 to 1, a
leverage ratio of 1 to 1, and a funds flow coverage ratio of 1.10
to 1.  Substantially all of the Company's short-term financing is
provided by this bank.  The Company incurred $357 of financing
fees related to origination of the Credit Agreement.  This amount
is included in prepaid expenses and other assets and will be
charged to interest expense over the term of the Credit
Agreement.  The Company had $7.8 million available under the
Credit Agreement at February 26, 1999.

      Additionally, the Company issued $4 million of subordinated
debentures, bearing interest at 12% per annum, due March 27,
2004, to a financial institution, a director of which has been
subsequently appointed and elected to the Company's Board of
Directors.  In connection with the subordinated debentures,
warrants were issued to acquire 332,820 shares of the Company's
common stock at an exercise price of $.50 per share; $499 of the
proceeds from the sale of the debentures was allocated to the
warrants and credited to capital contributed in excess of par
value of common stock.  This amount, along with financing fees of
$311, which were netted against the proceeds, will be amortized
to interest expense over the term of the debentures, which is
seven years.

      The Company also issued 25,000 shares of 11% redeemable
convertible preferred stock for $2.5 million.  Each share of
convertible stock is convertible, at the option of the
shareholder, into 26.66 shares of the Company's common stock at a
price of $3.75 per share.  Financing fees for the preferred stock
were approximately $208, which were netted against the proceeds
and will be accreted to retained earnings over five years.  The
preferred stock is mandatorily redeemable by the Company
beginning in 2002 at a rate of one-third per year (see also
footnote 15.

      Total financing fees associated with the recapitalization
were approximately $876.  The proceeds from these transactions
were used to repay, in full, amounts outstanding with a prior
lender.
  <PAGE 27>
      The components of the subordinated debt and preferred stock
at February 26, 1999, are as follows:

                                     Subordinated   Preferred
                                         debt         stock

      Face value                         $ 4,000      $ 2,500
      Deferred financing costs              (311)        (208)
      Accretion of preferred stock             -           80
      Amortization of financing costs         85            -
                                          3,774        2,372
      Debt issued for acquisition            350            -

      Balance at February 26, 1999       $ 4,124      $ 2,372


      As a condition to the extension of the prior credit facility
through March 31, 1997, warrants were issued to purchase 200,000
shares of the Company's common stock at a price equal to $2.59.
The warrants will be exercisable through 2001.  If the holder
desires to sell or transfer any of its warrants, the Company has
the right of first refusal.  A deferred charge of $202 was
assigned to the warrants and amortized to profit and loss during
the year ended February 28, 1997.  Warrants issued provide for
adjustments of the exercise price and the number of shares
issuable thereunder, in the event that the Company issues
additional shares of common stock or rights to purchase common
stock at a price less than the current warrant price or current
market price, whichever is greater.

      Product Liability Settlement:

      During June 1995, the Company entered into a settlement with
the employee of a customer who brought a products liability claim
against the Company.  The settlement of $1,195 will be satisfied
with (i) funds of $547 (including accrued interest) previously
deposited by the Company's products liability insurance carrier
with the U.S. District Court, and (ii) a settlement payable to
the plaintiff for the remaining amount of $648.  The Company paid
$53 by July 20, 1995 and $100 on April 20, 1996.  In
September 1996, the Company renegotiated the payment schedule.
For the period beginning October 1996, the company will pay $10
per month.  The claimant did reserve the right to pursue
additional payment amounts as per the original settlement
agreement of July 29, 1995.  The Company has recorded a discount
of $71 on this settlement based on an imputed interest rate of
11%, which is amortized over the term of the settlement.

      The carrying value of the aforementioned financial
instruments approximates their fair values at February 26, 1999.
  <PAGE 28>
8.    Related Parties:

      Convertible Notes Payable:

      Notes payable at February 27, 1998 represented amounts due
to directors, executive officers and their affiliates.  These
notes were paid in full during 1999.

      ETC Europe:

      The Company transacts its business in Europe through ETC
Europe, an affiliated entity which is 99% owned by the president
of the Company.  Sales through ETC Europe were $ 1,957 and $4,932
in 1999 and 1998, respectively.  Amounts due from ETC Europe as
of February 26, 1999 and February 27, 1998, were $ 56 and $-0-,
respectively (see also footnote 15).

      Subordinated Debt and Preferred Stock:

      During 1999 a director of ETC was also a director of one of
its creditors (see note 7 and note 15).

9.    Leases:

      Operating Leases:

      The Company leases certain premises and office equipment
under operating leases which expire over the next five years.
Future minimum rental payments required under noncancellable
operating leases having a remaining term expiring after one
fiscal year as of February 26, 1999, are $60 in 2000; $27 in
2001; $17 in 2002; $6 in 2003; and $-0- in 2004.

      Total rental expense for all operating leases for the years
ended February 26, 1999 and February 27, 1998, was approximately
$69 and $106, respectively.

10.   Income Taxes:

      The components of the provision (benefit) for income taxes
are as follows:

                                      Year  Ended    Year Ended
                                      February 26,   February 27,
                                          1999           1998
Currently payable:
    Federal                            $    1,272     $    1,099
    State                                     184             24
    Foreign taxes                             111              -
                                            1,567          1,123

Deferred:
    Federal                                  (333)          (142)
    State                                     (33)           (15)
                                             (366)          (157)
<PAGE 29>

                                       $    1,201     $      966

      A reconciliation of the statutory federal income tax
(benefit) to the effective tax is as follows:

                                      Year  Ended    Year Ended
                                      February 26,   February 27,
                                          1999           1998

Statutory income tax                       34.0%           34.0%
State income tax, net of federal tax
  benefit and state net operating
  loss carryforwards in 1998                3.9            (0.6)
Foreign sales corporation                  (4.4)           (4.9)
Other                                       1.5             6.5
                                           35.0%           35.0%


The tax effects of the primary temporary differences are as
follows:
                                            1999           1998
Deferred tax assets:
  Net arbitration award against Company  $   446         $    -
  Net products liability settlement          161             70
  Vacation reserve                            45             43
  Inventory reserve                          236            389
  Receivable reserve                         145            142
  Warranty reserve                            44             44
  Other, net                                  59             82

Total current deferred tax asset        $  1,136       $    770

Deferred tax liabilities:

Amortization of capitalized
  software                              $     407      $    432
  Depreciation                                295           270

    Total noncurrent deferred tax
     liability                          $     702      $    702
  <PAGE 30>
11.   Business Segment Information:

      The Company primarily manufactures, under contract, various
types of high-technology equipment which it has designed and
developed.  The Company considers its business activities to be
divided into two segments: ATS and Industrial Simulation.  The
ATS business produces devices which create and monitor the
physiological effects of motion, including spatial disorientation
and centrifugal forces for medical, training, research and
entertainment markets.  The Industrial Simulation business
produces chambers that create environmental situations that are
used for sterilization, research and medical applications.  The
following segment information reflects the accrual basis of
accounting:

<TABLE>
<CAPTION>
                                                     Industrial
                                           ATS       Simulation       Total
1999
<S>                                     <C>          <C>            <C>
Net sales                               $ 24,465     $ 4,760        $ 29,225
Interest expense                              711          84            795
Depreciation and amortization               1,289         353          1,642
Operating income (loss)                     5,697         (89)         5,608
Income tax provision (benefit)              1,745         (61)         1,684
Identifiable assets                        22,470       2,644         25,114
Expenditures for segment assets               438          26            464

1998

Net sales                               $ 22,055     $  7,229       $ 29,284
Interest expense                             808          158            966
Depreciation and amortization              1,048          415          1,463
Operating income (loss)                    4,231          691          4,922
Income tax provision (benefit)             1,198          187          1,385
Identifiable assets                       14,902        2,917         17,819
Expenditures for segment assets              435           85            520

<CAPTION>
                                                 1999           1998
<S>                                           <C>            <C>
Reconciliation to consolidated amounts:
Segment operating income                      $  5,608       $  4,922
Less interest expense                             (795)          (966)
Less income taxes                               (1,684)        (1,385)

Total profit for segments                        3,129          2,571

Corporate home office expense                     (849)          (714)
Interest and other expenses                       (517)          (482)
Income tax benefit                                 483            419
Minority interest                                  (76)           -

Net income                                   $   2,170      $   1,794

</TABLE>

      Segment operating income (loss) consists of net sales less
applicable costs and expenses relating to these revenues.
Unallocated general corporate expenses, letter of credit fees,
<PAGE 31> interest expense, and income taxes have been excluded
from the determination of the total profit for segments.  General
corporate expenses are primarily central administrative office
expenses.  Property, plant, and equipment are not identified with
specific business segments because most of these assets are used
in each of the segments.
  <PAGE 32>
12.   Business Segment Information (Continued):

      Approximately 24% of sales totalling $7,005 in 1999 were
made to one international customer in the ATS segment.
Approximately 19%, 11%, and 10% of sales in 1998 were made to two
international customers and one domestic commercial account,
totalling sales of $5,492, $3,266, and $3,013, respectively, in
the ATS segment.

      Included in the segment information for the year ended
February 26, 1999 are export sales of $22,876.  Of these amounts,
there are sales to or relating to governments in Europe ($7,005)
and the Middle East ($3,140) for the sales of ATS equipment.
Sales to the U.S. Government and its agencies aggregate $1,158
for the year ended February 26, 1999.

      Included in the segment information for the year ended
February 27, 1998 are export sales of $17,490.  Of these amounts,
there are sales to or relating to governments or commercial
customers of Europe ($6,197), the Middle East ($2,457) and Asia
($3,456) for the sales of ATS equipment.  Sales to the U.S.
Government and its agencies aggregated $2,936 for the year ended
February 27, 1998.

13.   Stock Options:

      In August, 1999 the Company adopted an Incentive Stock
Option Plan to replace the 1998 Incentive Stock Option Plan which
expired in August, 1998.  The plan authorizes a committee of the
Board of Directors to grant options for the purchase of up to
500,000 shares of common stock to qualifying officers and other
key employees.  The Plan provides that option price shall not be
less than 100% (or in the case of a ten percent owner 110%) of
the current market price of the stock on the date of the grant.
Options may be exercised on a cumulative basis at the rate of 25%
per year commencing one year after the date of grant.  The Plan
will terminate on August 1, 2008.  At February 26, 1999, there
were 321,500 shares available to be granted under the Plan.

      Since the exercise price of each option is not less than
100% of the current market price of the Company's stock on the
date of grant, no compensation cost has been recognized for the
Plan.  Had compensation cost for the Plan been determined based
on the fair value of the options at the grant dates consistent
with the method of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma
amounts indicated below.  Reported amounts reflect the 2 for 1
stock split declared by the Company on February 25, 1999 (see
note 1).
  <PAGE 33>
                                             1999       1998

Net income:
  As reported                              $ 2,170     $ 1,794
  Pro forma                                $ 2,073     $ 1,765

Basic earnings per share:
  As reported                              $   .32     $   .25
  Pro forma                                $   .30     $   .24

Diluted earnings per share:
  As reported                              $    .29    $   .23
  Pro forma                                $    .28    $   .22

      The fair value of each option grant is estimated on the date
of grant using the Black-Scholes options-pricing model with the
following weighted average assumptions used for grants in 1999
and 1998: dividend yield of 0% and 0%; expected volatility of 54%
and 60%; risk-free interest rate of 5.47% and 6.2%; and expected
life of five and four years.

      A summary of the status of the Plan as of February 26, 1999
and February 27, 1998, and changes during the years ending on
those dates is presented below.

<TABLE>
<CAPTION>
                                             1999                  1998
                                                Weighted              Weighted
                                                 average               average
                                                exercise              exercise
                                       Shares   price        Shares   price
<S>                                   <C>       <C>         <C>       <C>
Outstanding at beginning of year        92,350  $   1.99     197,620  $   1.88
Granted                                490,000      7.05           -         -
Exercised                              (38,650)     1.78     (79,670)     1.58
Forfeited                                    -         -     (25,600)     2.25
Outstanding at end of year             543,700      6.57      92,350      1.99

Options exercisable at year end         26,850                22,288
Weighted average fair value of
options granted during the year                 $    3.72             $      -

</TABLE>

      The following information applies to options outstanding at
February 26, 1999:

<TABLE>
<CAPTION>
                                   Options outstanding                     Options exercisable

                                                 Weighted
                                   Number         average        Weighted        Number          Weighted
                               Outstanding at    remaining        average    exercisable at      average
                                February 26,    contractual       exercise     February 26,      exercise
Range of exercise prices           1999         life (years)        price         1999             price
<S>                            <C>              <C>              <C>         <C>                 <C>
$1.75 to $2.25                     53,700        7.5 years          $2.21        26,850            $2.21
$5.00 to $7.81                    490,000        9.8 years          $7.05             -                -
</TABLE>  <PAGE 34>

14.   Claims and Litigation:

      A lawsuit was commenced against the Company in April 1997 in
the United States District Court for the District of Puerto Rico
by an employee of a customer who claims to have been injured as a
result of an alleged malfunction of a sterilizer manufactured by
the Company.  The plaintiff is seeking $3 million in damages.
The Company has up to $10 million of products liability coverage,
subject to a $100 deductible.  The outcome of this litigation is
not currently predictable.

      Certain other claims, suits, and complaints arising in the
ordinary course of business have been filed or are pending
against the Company.  In the opinion of management, after
consultation with legal counsel, all such matters are reserved
for or adequately covered by insurance or, if not so covered, are
without merit or are of such kind, or involve such amounts, as
would not have a significant effect on the financial position or
results of operations of the Company if disposed of unfavorably.

14.   Employee Benefit Plan

      The Company maintains a retirement savings 401(k) plan for
eligible employees.  The Company's contributions to the plan are
based on a percentage of the employees' qualifying contributions.
The Company's contributions totalled $103 and $91 in 1999 and
1998, respectively.

15.   Subsequent Events:

      ETC Europe:  Effective March 1, 1999, the Company signed an
agreement to purchase 99% of ETC Europe from the President of the
Company.  The sale price was approximately $100.  On May 8, 1999,
a deposit payment of $35 was made; the balance will be paid upon
receipt of audited financial statements.

      New Subsidiary: On April 16, 1999, the company formed a new
wholly owned subsidiary, Entertainment Technology Corporation.
This subsidiary will handle all of the Company's future
entertainment projects.

      Conversion of Preferred Stock:  On February 26, 1999, the
Company issued a redemption notice to redeem the outstanding
25,000 shares of Series A Preferred Stock in their entirety.  On
March 25, 1999, the Company received notice that Sirrom Capital
Corporation had exercised its conversion privilege under the
terms of the agreement to convert its 25,000 shares of Series A
Preferred Stock into the Company's common shares.  Consequently,
on April 19, 1999, the series A Preferred was retired and 666,666
shares of common stock were issued to Sirrom Capital.  Concurrent
with this transaction the company reclassed approximately $2.4
million of Preferred Stock value to common stock at par and
additional paid in capital.
  <PAGE 35>
16.   Quarterly Consolidated Financial Information (Unaudited):

      Financial data for the interim periods of 1999 and 1998 were
as follows:

                                        Quarter Ended

Fiscal Year 1999            May      August   November   February
                             29        28        27          26

Net sales                  $ 7,460   $ 5,996  $ 7,475    $ 8,294
Gross profit                 2,749     2,283    2,648      3,992
Operating income               999       829    1,003      1,928
Income before income taxes     712       441      597      1,697
Minority interest                         61      (10)        25
Net income                     464       234      399      1,073
Earnings per common share:
  Basic                        .07      .03      .05        .17
  Diluted                      .07      .02      .05        .15


                                         Quarter Ended

Fiscal Year 1998             May     August   November   February
                              30       29        28          27

Net sales                 $ 6,644    $ 7,181  $ 7,639    $ 7,820
Gross profit                1,960      2,358    2,467      2,513
Operating income              790      1,095    1,143      1,180
Income before income taxes    546        631      755        828
Net income                    360        406      491        537
Earnings per common share:
  Basic                       .05        .05      .07        .08
  Diluted                     .05        .05      .06        .07
<PAGE 36>