EXHIBIT 13  PORTIONS
    OF
    ENVIRONMENTAL TECTONICS CORPORATION
    2009
    ANNUAL REPORT TO STOCKHOLDERS
  FINANCIAL
    REVIEW
   Fiscal Year End

2009


2008Net sales

$
36,687


$
22,730Gross profit


11,858



4,380Operating loss


(346
)


(12,043
)Net loss


(1,974
)


(13,895
)Loss per common share:Basic


(0.32
)


(1.61
)Diluted


(0.32
)


(1.61
)Working capital


2,334



1,742Long-term obligations


22,072



18,192Total assets


34,928



37,625Total stockholders deficiency


(11,752
)


(8,831
)Weighted average common shares:Basic


9,037,000



9,030,000Diluted


9,037,000



9,030,000      1




---



##### 



Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  FORWARD-LOOKING
    STATEMENTS
  Form 10-K
  Form 10-K,
        Overview
   2




---



##### 



Unfavorable
    Impacts
    
    Severely contracted domestic economic conditions which affected
    new contract awards primarily in the second half of the fiscal
    year in our Controls Systems Group, whose main market is
    U.S. based;    
    the continuing cost of worldwide marketing of our Authentic
    Tactical Fighting Systems (ATFS);
    engineering costs to improve the technical abilities of our ATFS
    line of products;
    cost overruns on a TacModule contracted by the
    U.S. Navy; and
    validation effort associated with Upset Recovery Training.  G-force
         3




---



##### 



GL-2000,
  Form 10-K,
  
    continued development of software for our Advanced Disaster
    Management Scenario  (ADMS) product line; and
    product line and market definition for our ADMS applications.    
    amortization of development costs with limited revenue
    generation in our entertainment division.    
    higher commissions expense reflecting the sales mix and higher
    sales level; and
    higher costs of capital and amortization of deferred finance
    charges;  %
  
    Bid and proposal effort primarily directed to significant
    potential U.S government contracts;    
    cash flow.     4




---



##### 



Challenges
    Going Forward
    
    Successfully complete our current large ongoing aeromedical
    projects.
    Book at least one major contract with the U.S. Department
    of Defense.
    Obtain additional research and validation contracts for our ATFS
    technologies.
    Book at least one significant international contract for
    aeromedical equipment.
    Maintain our market position for the products in our CSG lines
    in anticipation of improved market and economic conditions.
    Promote the Upset Recovery Training available through our
    gyro-lab simulator.
    Finalize our only outstanding major litigation case either
    through settlement, mediation or by judicial determination.
    Complete our refinancing transaction with Lenfest and PNC Bank.    
    Market ATFS technology to the U.S. military.
    Search for additional research contracts to utilize NASTAR
    resources.
    Reduce our costs of manufacture for all product offerings in our
    Control Systems Group divisions.  Critical
    Accounting Policies
         5




---



##### 




    Revenue Recognition            Accounts
    Receivable
   6




---



##### 



Results
    of Operations
    Fiscal
    2009 versus Fiscal 2008
  Summary Table of ResultsYear Ended


Year EndedFebruary 27,


February 29,


Variance


Variance2009


2008


$


%(Amounts in thousands)Sales:Domestic

$
14,442


$
13,478


$
964



7.2
%US Government


3,096



1,828



1,268



69.4
%International


19,149



7,424



11,725



157.9
%Total Sales


36,687



22,730



13,957



61.4
%Gross Profit


11,858



4,380



7,478



170.7
%Selling, general and administrative


11,094



11,652



558



4.8
%Claim settlement costs






3,638



3,638



100.0
%Impairment expense






455



455



100.0
%Research and development


1,110



678



(432
)


(63.7
)%Operating loss


(346
)


(12,043
)


11,697



97.1
%Interest expense, net


1,569



1,582



13



0.8
%Other expense, net


67



236



169



71.6
%Income taxes






37



37



100.0
%Minority interest


(8
)


(3
)


5



166.7
%Net loss

$
(1,974
)

$
(13,895
)

$
11,921



85.8
%Net loss per common share

$
(0.32
)

$
(1.61
)

$
1.29



80.1
%   Net
    Loss
     7




---



##### 



Sales
    ,
      Domestic
    Sales
    International
    Sales
  ,
   8




---



##### 



Segment
    Sales
  ($000 except for %)Training Services Group


Control Systems Group


TotalFiscal Year

$


%


$


%


$


%2009


20,608



56.2
%


16,079



43.8
%


36,687



100.0
%2008


7,844



34.5
%


14,886



65.5
%


22,730



100.0
%         Gross
    Profit
    Selling
    and Administrative Expenses
    Claim
    Settlement Costs
    Impairment
    Expense
    Research
    and Development Expenses
   9




---



##### 



Operating
    Loss
        Interest
    Expense
    Other
    Expense, net
    Provision
    for Income Taxes
    ETC-PZL
   10




---



##### 



Liquidity
    and Capital Resources
              Less Than 1





After 4Total


Year


1-3 Years


YearsLong-term debt, including current maturities

$
22,081


$
9


$
22,072


$
Operating leases


407



135



254



18Total

$
22,488


$
144


$
22,326


$
18     Sales
    Backlog
       11




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##### 



Off-Balance
    Sheet Arrangements
    Recent
    Accounting Pronouncements
  Business Combinations
  EITF 07-5, Determining Whether an Instrument (or Embedded Feature)
    Is Indexed to an Entitys Own Stock EITF 07-5 EITF 01-6, The Meaning of Indexed to a Companys Own
    Stock. Whether Options (Including Embedded
    Conversion Options) Are Indexed to both an Entitys Own
    Stock and Currency Exchange Rates EITF 07-5
  EITF 08-6, Equity Method Investment Accounting
    Considerations. EITF 08-6
  EITF 08-7, Accounting for Defensive Intangible Assets. EITF 08-7
 12




---



##### 



Equity
    Compensation Plan Information
  Number of SecuritiesRemaining AvailableNumber of Securities to be





for Future Issuance UnderIssued Upon Exercise of


Weighted-Average Exercise


Equity Compensation PlansOutstanding Options,


Price of Outstanding Options,


(Excluding SecuritiesPlan Category

Warrants and Rights


Warrants and Rights


Reflected in Column(a))(a)


(b)


(c)Equity compensation plans approved by security holders


157,652


$
5.90



520,000Equity compensation plans not approved by security holders






N/A



197,843Total


157,652


$
5.90



717,843     Employee
    Stock Purchase Plan
   13




---



##### 



Report
    of Independent Registered Public Accounting Firm              
   May 12, 2009
 14




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##### 



Environmental
    Tectonics Corporation



Consolidated
    Balance Sheets  February 27,


February 29,2009


2008(In thousands, exceptshare information)ASSETSCash and cash equivalents

$
520


$
1,871Restricted cash


4,454



4,526Accounts receivable, net of allowance for bad debt of $364 and
    $746


5,100



3,231Costs and estimated earnings in excess of billings on
    uncompleted long-term contracts


2,460



3,422Inventories, net


4,435



6,773Prepaid expenses and other current assets


479



833Total current assets


17,448



20,656Property, plant and equipment, at cost, net


15,786



15,208Construction in progress


275



141Software development costs, net of accumulated amortization of
    $13,105 and $12,161


1,013



1,614Other assets


406



6Total assets

$
34,928


$
37,625LIABILITIESCurrent portion of long-term debt

$
9


$
9Accounts payable  trade


2,105



3,060Billings in excess of costs and estimated earnings on
    uncompleted long-term contracts


4,155



6,491Customer deposits


2,397



2,989Accrued claim settlement costs






2,275Accrued interest and dividends


4,197



2,287Other accrued liabilities


2,251



1,803Total current liabilities


15,114



18,914Long-term obligations, less current portion:Credit facility payable to bank


10,510



8,810Promissory note payable


1,891



Subordinated convertible debt


9,664



9,366Other long-term debt


7



1622,072



18,192Unearned interest


152



Total liabilities


37,338



37,106Commitments and contingencies






Minority interest


42



50Cumulative convertible participating preferred stock,
    Series B, $.05 par value, 15,000 shares
    authorized; 6,000 shares issued and outstanding


6,000



6,000Cumulative convertible participating preferred stock,
    Series C, $.05 par value, 3,300 shares
    authorized, issued and outstanding


3,300



3,300STOCKHOLDERS DEFICIENCYCumulative convertible participating preferred stock,
    Series D






Cumulative convertible participating preferred stock,
    Series E






Common stock, $.05 par value, 20,000,000 shares
    authorized; 9,049,351 and 9,035,355 shares issued and
    outstanding


452



451Additional paid-in capital


15,399



16,139Accumulated other comprehensive loss


(557
)


(349
)Accumulated deficit


(27,046
)


(25,072
)Total stockholders deficiency


(11,752
)


(8,831
)Total liabilities and stockholders deficiency

$
34,928


$
37,625    15




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##### 



Environmental
    Tectonics Corporation



Consolidated
    Statements of Operations  52 Weeks Ended


53 Weeks EndedFebruary 27,


February 29,2009


2008(Amounts in thousands,except share information)Net sales

$
36,687


$
22,730Cost of goods sold


24,829



18,350Gross profit


11,858



4,380Operating expenses:Selling and administrative, including stock compensation expense
    of $44 and $114


11,094



11,652Claim settlement costs






3,638Impairment charge






455Research and development


1,110



67812,204



16,423Operating loss


(346
)


(12,043
)Other expenses:Interest expense, net


1,569



1,582Other expense, net


67



2361,636



1,818Loss before provision for income taxes and minority interest


(1,982
)


(13,861
)Provision for income taxes






37Loss before minority interest


(1,982
)


(13,898
)Income attributable to minority interest


(8
)


(3
)Net loss


(1,974
)


(13,895
)Preferred stock dividends


(927
)


(661
)Loss applicable to common shareholders

$
(2,901
)

$
(14,556
)Per share information:Loss per common share applicable to common shareholders:Basic and diluted

$
(0.32
)

$
(1.61
)Weighted average common shares:Basic and diluted


9,037,000



9,030,000    16




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##### 



Environmental
    Tectonics Corporation



Consolidated
    Statements of Changes in Stockholders Deficiency

For the
    52 weeks ended February 27, 2009 and the 53 weeks
    ended February 29, 2008  Additional


Accumulated Other





TotalCommon Stock


Paid-in


Comprehensive


Accumulated


StockholdersShares


Amount


Capital


Loss


Deficit


Deficiency(Amounts in thousands, except share information)Balance, February 23, 2007


9,028,459


$
451


$
16,662


$
(149
)

$
(11,177
)

$
5,787Net loss for the year


















(13,895
)


(13,895
)Interest hedge valuation














(228
)






(228
)Foreign currency translation adjustment














28







28Total comprehensive loss






















(14,095
)Stock compensation expense










114











114Issuance of stock under employee stock purchase plan and Board
    of Directors compensation


6,896







24











24Accumulated preferred stock dividends










(661
)










(661
)Balance, February 29, 2008


9,035,355


$
451


$
16,139


$
(349
)

$
(25,072
)

$
(8,831
)Net loss for the year


















(1,974
)


(1,974
)Interest hedge valuation














(40
)






(40
)Foreign currency translation adjustment














(168
)






(168
)Total comprehensive loss






















(2,182
)Stock compensation expense










44











44Warrants issued with $2 million promissory note










128











128Issuance of stock under employee stock purchase plan and Board
    of Directors compensation


13,996



1



15











16Accumulated preferred stock dividends










(927
)










(927
)Balance, February 27, 2009


9,049,351


$
452


$
15,399


$
(557
)

$
(27,046
)

$
(11,752
)    17




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##### 



Environmental
    Tectonics Corporation



Consolidated
    Statements of Cash Flows  52 Weeks Ended


53 Weeks EndedFebruary 27,


February 29,2009


2008(Amounts in thousands)Cash flows from operating activities:Net loss

$
(1,974
)

$
(13,895
)Adjustments to reconcile net loss to net cash (used in) provided
    by operating activitiesDepreciation and amortization


1,797



1,996Accretion of debt discount


298



536Increase in allowance for accounts receivable and inventory


212



687Income attributable to minority interest


(8
)


(3
)Impairment charge






455Stock compensation expense


44



138Deferred income taxes (benefit)


(38
)


28Changes in operating assets and liabilities:(Increase) decrease in assets:Accounts receivable


(1,483
)


(1,601
)Costs and estimated earnings in excess of billings on
    uncompleted long-term contracts


962



(606
)Inventories


1,740



(2,257
)Prepaid expenses and other current assets


392



(577
)Other assets


(381
)


24Increase (decrease) in liabilities:Accounts payable


(955
)


806Billings in excess of costs and estimated earnings on
    uncompleted long-term contracts


(2,336
)


5,091Customer deposits


(592
)


2,195Accrued income taxes






Accrued interest and dividends


983



958Other accrued liabilities


600



264Net cash used in operating activities


(739
)


(5,761
)Cash flows from investing activities:Acquisition of equipment


(1,566
)


(3,618
)Software development costs


(342
)


(669
)Net cash used in investing activities


(1,908
)


(4,287
)Cash flows from financing activities:Borrowings under credit facility


1,700



8,810Issuance of notes payable, Lenfest


2,000



4,000Repayments of notes payable, Lenfest






(4,000
)Restricted cash from notes payable, Lenfest


(2,000
)


Other debt obligations


(9
)


25Issuance of preferred stock






3,300Restricted cash for claim settlement


2,072



(2,072
)Accrued claim settlement costs


(2,275
)


2,275Restricted cash for performance guarantee






(2,434
)Issuance of common stock


16



Net cash provided by financing activities


1,504



9,904Effect of other comprehensive income


(208
)


(200
)Net decrease in cash and cash equivalents


(1,351
)


(344
)Cash and cash equivalents at beginning of year


1,871



2,215Cash and cash equivalents at end of year

$
520


$
1,871Supplemental schedule of cash flow information:Interest paid

$
475


$
230Income taxes paid






Supplemental information on non-cash operating, investing and
    financing activities:Accrued dividends on preferred stock

$
927


$
661      18




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##### 



Environmental
    Tectonics Corporation



Notes to
    the Consolidated Financial Statements  1.
    Subsequent
    Events  Refinancing
    Transaction
    Lenfest
    Credit Facility
      Form 8-K
 19




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
                   20




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Exchange
    of Existing Instruments for Series E Preferred
    Stock
    pari passu
    Increased
    PNC Bank Credit Facility and Issuance of New
    Guarantee
     21




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
                  Series D
    Preferred Stock
   22




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  pari passu
    Accounting
    Treatment for Refinancing Transaction
    No. D-98, No. D-109,
  Financing
    Transaction Conditions
    Unaudited
    Pro Forma Balance Sheet
    23




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Pro FormaEnvironmental Tectonics Corporation Pro

February 27,





February 27,forma Balance Sheet as of February 27, 2009

2009


Pro Forma Adjustments


2009(Audited)


(Unaudited)


(Unaudited)(Amounts in thousands)ASSETSCash and cash equivalents

$
520














$
520Restricted cash


4,454















4,454Accounts receivable, net


5,100















5,100Costs and estimated earnings in excess of billings on
    uncompleted long-term contracts


2,460















2,460Inventories, net


4,435















4,435Prepaid expenses and other current assets


479















479Total current assets


17,448















17,448Property, plant and equipment, at cost, net


15,786















15,786Construction in progress


275















275Software development costs, net


1,013















1,013Other assets


406




(e)


200
(f)


205



811Total assets

$
34,928


$



$
200


$
205


$
35,333LIABILITIESCurrent portion of long-term debt

$
9














$
9Accounts payable  trade


2,105















2,105Billings in excess of costs and estimated earnings on
    uncompleted long-term contracts


4,155















4,155Customer deposits


2,397















2,397Accrued claim settlement costs


















Accrued interest and dividends


4,197
(b)


(4,170
)










27Other accrued liabilities


2,251















2,251Total current liabilities


15,114



(4,170
)










10,944Long-term obligations, less current portion:Credit facility payable to bank


10,510















10,510Promissory note payable


1,891















1,891Subordinated convertible debt


9,664
(a)


336
(c)


(10,000
)






Other long-term debt


7















722,072



336



(10,000
)






12,408Unearned interest


152















152Total liabilities


37,338



(3,834
)


(10,000
)






23,504Commitments and contingencies


















Minority interest


42















42Cumulative convertible participating preferred stock,
    Series B


6,000







(d
)


(6,000
)


Cumulative convertible participating preferred stock,
    Series C


3,300







(d
)


(3,300
)


STOCKHOLDERS (DEFICIENCY) EQUITYCumulative convertible participating preferred stock,
    Series D







(e)


100
(f)


55



155Cumulative convertible participating preferred stock,
    Series E



(b)


4,170
(c)


10,000
(d)


9,300



23,470Common stock


452















452Additional paid-in capital


15,399




(e)


100
(f)


150



15,649Accumulated other comprehensive loss


(557
)














(557
)Accumulated deficit


(27,046
)(a)


(336
)










(27,382
)Total stockholders (deficiency) equity


(11,752
)


3,834



10,200



9,505



11,787Total liabilities and stockholders (deficiency) equity

$
34,928


$



$
200


$
205


$
35,333     Pro forma adjustments:
  (a)
    
    To expense as extinguishment of debt the unamortized debt
    discount on the Subordinated convertible debt 24




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
   (b)
    
    Exchange of $2,323 of accrued interest due on Subordinated note
    payable plus $1,847 of accrued dividends due on Series B
    and Series C preferred stock for $4,170 of Series E
    Preferred Stock(c)
    
    Exchange of Subordinated note payable for $10,000 of
    Series E Preferred Stock(d)
    
    Exchange of $6,000 of Series B and $3,300 of Series C
    preferred stock for $9,300 of Series E preferred stock(e)
    
    Issuance of $100 of Series D preferred stock as loan
    origination fee for additional Lenfest $10,000 collateral on PNC
    line of credit plus 10% warrant coverage on the $5 million
    increase in the line of credit(f)
    
    Issuance of $55 of Series D preferred stock as loan
    origination fee for additional Lenfest $7,500 line of credit
    plus 10% warrant coverage  Delisting
    from NYSE AMEX LLC
      2.
    Nature of
    Business and Liquidity Matters:    Training Services Group.
  Control Systems Group.
     25




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Sales
    Backlog
            3.
    Summary
    of Significant Accounting Policies:  Principles
    of Consolidation:
    Use of
    Estimates:
   26




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Fair
    Value of Financial Instruments
    
    Level 1:  Observable inputs such as quoted prices
    in active markets for identical assets of liabilities;
    Level 2:  Inputs other than quoted prices that
    are observable for the asset or liability, either directly or
    indirectly; these include quoted prices for similar assets or
    liabilities in active markets and quoted prices or identical
    assets or liabilities in markets that are not active;
    Level 3:  Unobservable inputs that are supported
    by little or no market activity, which require the reporting
    entitys judgment or estimation.    Fair Value Measurement atFebruary 27, 2009 using(amounts in thousands)Liabilities

Level 1


Level 2


Level 3


TotalCredit facility payable to bank


$



$



$13,241



$13,241Interest rate swap agreements






269







269Subordinated convertible debt










9,091



9,091Promissory note payable










1,503



1,503Total


$



$269



$23,835



$24,104       Revenue
    Recognition:
   27




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
          Cash
    and Cash Equivalents:
    Restricted
    Cash:
      Accounts
    Receivable and Concentration of Credit Risk
   28




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Inventories:
  first-in, work-in-process
  Depreciation
    of Property, Plant and Equipment:
    Goodwill:
    Capitalized
    Software Development Costs:
  ,
  Research
    and Development:
    Income
    Taxes:
    Long-Lived
    Assets:
   29




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    Share-Based
    Compensation:
    Advertising
    Costs:
    Earnings
    Per Common Share:
    Recent
    Accounting Pronouncements
  Business Combinations
  EITF 07-5, Determining Whether an Instrument (or Embedded Feature)
    Is Indexed to an Entitys Own Stock EITF 07-5 EITF 01-6, The Meaning of Indexed to a Companys Own
    Stock. Whether Options (Including Embedded
    Conversion Options) Are Indexed to both an Entitys Own
    Stock and Currency Exchange Rates EITF 07-5
 30




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##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    EITF 08-6, Equity Method Investment Accounting
    Considerations. EITF 08-6
  EITF 08-7, Accounting for Defensive Intangible Assets. EITF 08-7
    4.
    Accounts
    Receivable:    February 27,


February 29,2009


2008(In thousands)U.S. government receivables billed and unbilled contract costs
    subject to negotiation

$
551


$
315U.S. commercial receivables billed


1,002



2,573International receivables billed


3,911



1,0895,464



3,977Less allowance for doubtful accounts


(364
)


(746
)Accounts receivable, net

$
5,100


$
3,231   5.
    Costs and
    Estimated Earnings on Uncompleted Contracts:  Unbilled
    costs
    February 27,


February 29,2009


2008(In thousands)Cost incurred on uncompleted long-term contracts

$
26,777


$
44,451Estimated earnings


16,911



12,07143,688



56,522Less billings to date


(45,383
)


(59,591
)$
(1,695
)

$
(3,069
)  31




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    February 27,


February 29,2009


2008(In thousands)Costs and estimated earnings in excess of billings on
    uncompleted long-term contracts

$
2,460


$
3,422Billings in excess of costs and estimated earnings on
    uncompleted long-term contracts


(4,155
)


(6,491
)$
(1,695
)

$
(3,069
)     6.
    Inventories:    February 27,


February 29,2009


2008(In thousands)Raw material

$
92


$
90Work in process


3,564



5,916Finished goods


779



767Total inventory

$
4,435


$
6,773     7.
    Property,
    Plant and Equipment:    February 27,


February 29,2009


2008(In thousands)Land

$
100


$
100Buildings and building additions


3,851



3,851Machinery and equipment


22,426



21,034Office furniture and equipment


1,194



1,194Building improvements


2,489



2,46630,060



28,645Less accumulated depreciation


(14,274
)


(13,437
)Property, plant and equipment, net

$
15,786


$
15,208    32




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  8.
    Long-Term
    Obligations and Credit Arrangements:    Lenfest
    Promissory Note
        Lenfest
    Letter Agreement
    Bank
    Credit and Facility
     33




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
                February 27,


February 29,2009


2008(In thousands)Note payable to bank

$
10,510


$
8,810Automobile loan


16



25Promissory note, net of unamortized discount of $109


1,891



Subordinated convertible debt, net of unamortized discount of
    $336 and $634 at February 27, 2009 and February 29,
    2008, respectively


9,664



9,366$
22,081


$
18,201  34




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    2010

$
92011


22,0722012 and thereafter


Total future obligations

$
22,081     Equity
    Line
        Preferred
    Stock
     35




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
            No. D-98, No. D-109,
  Subordinated
    Convertible Debt
     36




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      Subordinated
    Convertible Debt Discount
      (In thousands)Face Value

$
10,000Less value of conversion feature


(1,400
)Less value of warrants


(1,209
)7,391Accretion 2009


298Accretion 2008


536Accretion prior years


1,439Carrying value at February 27, 2009

$
9,664     Less Than 1Total


Year


1-3 Years


After 4 YearsLong-term debt, including current maturities

$
22,081


$
9


$
22,072


$
Operating leases


407



135



254



18Total

$
22,488


$
144


$
22,326


$
18    37




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  Accrued
    Interest and Dividends to Lenfest
    February 27,


February 29,2009


2008(Amounts in thousands)Accrued dividends on Series B Preferred Stock

$
1,347


$
749Accrued dividends on Series C Preferred Stock


500



171Total accrued dividends


1,847



920Accrued interest on Subordinated Debt


2,323



1,367Other accrued interest


27



Total accrued interest


2,350



1,367Total accrued interest and dividends

$
4,197


$
2,287   9.
    Leases:  Operating
    Leases
    10.
    Income
    Taxes:    52 Weeks Ended


53 Weeks EndedFebruary 27, 2009


February 29, 2008(In thousands)$



$Currently (receivable) payableFederal






State






Foreign (benefits) taxes






37



37Deferred:Federal






State






Foreign benefit






$



$
37  38




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    52 Weeks Ended


53 Weeks EndedFebruary 27, 2009


February 29, 2008Statutory income tax


(34.0
)%


(34.0
)%State income tax, net of federal tax benefit


( 2.5
)


( 3.7
)Research and experimentation and other tax credits


(7.3
)


(1.0
)Benefit of foreign and foreign-source income or loss


5.5



(1.1
)Change in valuation allowance


32.8



39.7Effect of change in effective tax rate


4.0



Other, net


1.5



0.4
%


(0.3
)%     2009


2008(In thousands)Deferred tax assets:Net operating loss and credits

$
16,520


$
13,669Vacation reserve


74



69Inventory reserve


676



464Receivable reserve


135



278Warranty reserve


63



63Compensation and other reserves


76



58Stock options


96



97ETC  PZL deferred tax asset


81



43Other, net


74



7517,795



14,816Valuation Reserve


(15,364
)


(13,558
)Total current deferred tax asset

$
2,431


$
1,258Deferred tax liabilities:Amortization of capitalized software

$
462


$
727Depreciation


1,888



488Total non-current deferred tax liability

$
2,350


$
1,215Net deferred tax asset

$
81


$
43    39




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      11.
    Business
    Segment Information:      Training Services


Control SystemsTSG


CSG


Total(Amounts in thousands)Fiscal 2009Net sales

$
20,608


$
16,079


$
36,687Interest expense


1,161



408



1,569Depreciation and amortization


742



1,181



1,923Operating income (loss)


2,431



(1,497
)


934Income tax benefit










Identifiable assets


8,236



4,772



13,008Expenditures for segment assets


1,881



358



2,239Fiscal 2008Net sales

$
7,844


$
14,886


$
22,730Interest expense


1,171



411



1,582Depreciation and amortization


1,380



616



1,996Operating loss


(3,929
)


(5,551
)


(9,480
)Income tax benefit


37







37Identifiable assets


7,369



7,669



15,038Expenditures for segment assets


3,407



287



3,694   40




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  2009


2008Reconciliation to consolidated amounts:Segment assets

$
13,008


$
15,038Corporate assets


21,920



22,587Total assets

$
34,928


$
37,625Segment operating (loss)/income

$
934


$
(9,480
)Less interest expense


(1,569
)


(1,582
)Income tax (provision) benefit






(37
)Total loss for segments


(635
)


(11,099
)Corporate home office expense


(1,280
)


(2,085
)Impairment charge






(455
)Other expenses


(67
)


(259
)Minority interest


8



3Net loss

$
(1,974
)

$
(13,895
)          41




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
  12.
    Stock
    Options:    February 27, 2009


February 29, 2008Weighted





WeightedAverage





AverageShares


Exercise Price


Shares


Exercise PriceOutstanding at beginning of year


371,928


$
6.70



371,928


$
6.70Granted














Exercised














Forfeited


(214,276
)










Outstanding at end of year


157,652



5.90



371,928



6.70Options exercisable at year end


157,652







332,816Weighted average fair value of options granted during the year





$







$
     Options Outstanding


Options ExercisableWeightedNumber


Average


Weighted


Number


WeightedOutstanding at


Remaining


Average


Exercisable at


AverageFebruary 27,


Contractual


Exercise


February 29,


ExerciseRange of Exercise Prices

2009


Life (Years)


Price


2008


Price$5.12


80,000



8.0 years


$
5.12



80,000


$
5.12$6.07 to $7.35


77,672



6.1 years


$
6.71



77,672


$
6.71Total


157,672











157,672       Employee
    Stock Plan:
    Non-employee
    Director Stock Plan:
   42




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      13.
    Other
    Related Party Transactions  son-in-law
      14.
    Commitments
    and Contingencies  Mends
    International, Ltd.
    Walt
    Disney World Co.
   43




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
      Settlement
    with U.S. Navy
  History
    of the Claim Receivable
    Form 10-K
  Litigation
    of the Certified Claim
    Settlement
    of Litigation and Subsequent Funding
      Other
    Matters
   44




---



##### 



Environmental
    Tectonics Corporation
  Notes to
    the Consolidated Financial
    Statements  (Continued)
    15.
    Employee
    Benefit Plan:      16.
    Quarterly
    Consolidated Financial Information (Unaudited):    Quarter EndedMay 30,


August 29,


November 28,


February 27,Fiscal Year 2009

2008


2008


2008


2009Net sales

$
9,975


$
8,724


$
8,706


$
9,282Gross profit


2,495



2,042



2,957



4,364Operating (loss) profit


(1,113
)


(1,117
)


276



1,608(Loss) profit before minority interest


(1,488
)


(1,601
)


(114
)


1,221Minority interest


3



(8
)


1



(4
)Net (loss) income


(1,491
)


(1,593
)


(113
)


1,223(Loss) income per common share:Basic

$
(0.19
)

$
(0.20
)

$
(0.04
)

$
0.11Diluted

$
(0.19
)

$
(0.20
)

$
(0.04
)

$
0.11   Quarter EndedMay 25,


August 24,


November 23,


February 29,Fiscal Year 2008

2007


2007


2007


2008Net sales

$
4,347


$
4,247


$
6,701


$
7,435Gross profit


939



588



1,267



1,586Operating loss


(5,347
)


(2,579
)


(1,627
)


(2,490
)Loss before minority interest


(5,731
)


(2,976
)


(2,094
)


(3,060
)Minority interest


(6
)


(6
)


4



5Net loss


(5,725
)


(2,970
)


(2,098
)


(3,102
)Loss per common share:Basic

$
(0.64
)

$
(0.34
)

$
(0.26
)

$
(0.37
)Diluted

$
(0.64
)

$
(0.34
)

$
(0.26
)

$
(0.37
)  45




---



##### 



ENVIRONMENTAL
    TECTONICS CORPORATION AND SUBSIDIARIES
  SCHEDULE II
  VALUATION
    AND QUALIFYING ACCOUNTS
  Column A

Column B


Column C


Column D


Column ECharges /Balance at


(Credits) to





Balance atBeginning


Costs or





EndDescription

of Period


Expenses


Reductions


of Period(In thousands)Fiscal year ended February 27, 2009Valuation and qualifying accounts related to:Accounts receivable

$
746


$
16


$
398


$
364Inventory


1,222



819



221



1,820Property, plant and equipment


13,437



837







14,274Software development costs


12,162



943







13,105Fiscal year ended February 29, 2008Valuation and qualifying accounts related to:Accounts receivable

$
3,372


$
378


$
3,004


$
746Inventory


991



808



577



1,222Property, plant and equipment


12,760



677







13,437Software development costs


10,949



1,213







12,162  46