##### 



EXHIBIT 13
 PORTIONS OF
ENVIRONMENTAL TECTONICS CORPORATION
2007
ANNUAL REPORT TO STOCKHOLDERS
 FINANCIAL REVIEW
  Fiscal Year End
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Net sales
    
    $
    17,419
    
    
    $
    25,069
    
    
    $
    27,814
    
    
    $
    25,995
    
    
    $
    43,123Gross profit
    
    
    2,071
    
    
    
    5,350
    
    
    
    6,176
    
    
    
    9,943
    
    
    
    14,198Operating (loss) income
    
    
    (7,932
    )
    
    
    (4,719
    )
    
    
    (7,130
    )
    
    
    131
    
    
    
    4,116Net (loss) income
    
    
    (8,940
    )
    
    
    (6,714
    )
    
    
    (8,113
    )
    
    
    (793
    )
    
    
    2,493(Loss) earnings per
common share:Basic
    
    
    (1.02
    )
    
    
    (0.74
    )
    
    
    (1.06
    )
    
    
    (0.11
    )
    
    
    0.35Diluted
    
    
    (1.02
    )
    
    
    (0.74
    )
    
    
    (1.06
    )
    
    
    (0.11
    )
    
    
    0.33Working capital
    
    
    9,708
    
    
    
    19,820
    
    
    
    29,818
    
    
    
    29,907
    
    
    
    31,216Long-term obligations
    
    
    8,830
    
    
    
    8,376
    
    
    
    12,087
    
    
    
    12,157
    
    
    
    12,643Total assets
    
    
    31,520
    
    
    
    33,667
    
    
    
    47,909
    
    
    
    48,696
    
    
    
    47,698Total stockholders equity
    
    
    14,791
    
    
    
    17,553
    
    
    
    24,355
    
    
    
    25,054
    
    
    
    25,907Weighted average common
shares:Basic
    
    
    9,030,000
    
    
    
    9,021,000
    
    
    
    7,656,000
    
    
    
    7,163,000
    
    
    
    7,153,000Diluted
    
    
    9,030,000
    
    
    
    9,021,000
    
    
    
    7,656,000
    
    
    
    7,163,000
    
    
    
    7,497,000
  1




---



##### 



Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
     Overview
   
    
    continued unfavorable global economic and political conditions for our aeromedical products;
 
    
    the cost of development and marketing efforts for our Authentic Tactical Fighting Systems;
 
    
    spending to modify our main facility in Southampton, Pa., and to build equipment for the
National Aerospace Training and Research (NASTAR) Center.
   2




---



##### 




    
    continued development of generation 3 software for our Advanced Disaster Management Scenario
product line;
 
    
    spending to investigate and evaluate the best way to offer disaster training services;
  
    
    limited revenue generation coupled with high development costs in our low-end entertainment
products;
  
    
    development costs to further enhance the functionality of our
GL-2500 GYROLAB product;
  
    
    higher costs of capital and amortization of deferred finance
charges;
  
    
    public company and litigation and claims costs;
  
    
    cash flow;
  3




---



##### 




    
    Complete the building modifications and equipment production and open the NASTAR
Center.
    
    Book at least one significant training contract for the NASTAR Center. This could
be in the area of pilot training, aeromedical research or space adventure.
    
    Book an order for cockpits for the ATFS-400 for either the U.S. Navy or the U.S. Air Force.
    
    Begin validation of the ATFS technology.
    
    Book at least one significant international contract for aeromedical equipment.
    
    Successfully execute the open large order for environmental control equipment booked near the end of fiscal 2007.
    
    Design and implement an awareness program to introduce and educate alternative
hyperbaric medicine applications users in the applicability, functionality and
flexibility of our hyperbaric monoplace chamber.
    
    Maximize sales bookings in our sterilizer division.
    
    Complete and implement our new training services business plan in our ADMS line.
    
    Finalize our two outstanding major litigation cases either through settlement,
mediation or by judicial determination.
    
    In ETC-PZL, replace the recently completed significant contract from L-3
Communications with additional outside contracts.
    
    Restructure or replace our existing letter of credit facility with PNC and our
financial borrowing arrangements with Mr. Lenfest. The PNC Agreement expires in June,
2007, and both the Lenfest Equity Line and the Promissory Note expire in October
2007.
  
    
    Market ATFS technology to the U.S. military.
    
    Market our ability to provide aeromedical training for potential passengers for space sub-orbital flight.
    
    Reduce our costs of manufacture for all product offerings in our Control Systems Group divisions.
    
    Design and implement an awareness program to introduce and educate alternative hyperbaric medicine
applications users in the applicability, functionality and flexibility of our hyperbaric monoplace
chamber.
    
    Negotiating with a potential bank to establish a line of credit which will either
replace or supplant our existing equity
line and unsecured note with Mr. Lenfest.
 4




---



##### 



Critical Accounting Policies
  5




---



##### 



6




---



##### 



Results of Operations
  Fiscal 2007 versus Fiscal 2006
 (amounts in thousands)
 Summary Table of ResultsYear ended
    
    Year ended
    
    Variance
    
    VarianceFebruary 23, 2007
    
    February 24, 2006
    
    $
    
    %( ) = UnfavorableSales:Domestic
    
    $
    6,012
    
    
    $
    9,140
    
    
    $
    (3,128
    )
    
    
    (34.2
    )%US Government
    
    
    586
    
    
    
    2,586
    
    
    
    (2,000
    )
    
    
    (77.3
    )%International
    
    
    10,821
    
    
    
    13,343
    
    
    
    (2,522
    )
    
    
    (18.9
    )%Total Sales
    
    
    17,419
    
    
    
    25,069
    
    
    
    (7,650
    )
    
    
    (30.5
    )%Gross Profit
    
    
    2,071
    
    
    
    5,350
    
    
    
    (3,279
    )
    
    
    (61.3
    )%Selling, general & administrative
    
    
    9,434
    
    
    
    9,625
    
    
    
    191
    
    
    
    2.0
    %Research & development
    
    
    569
    
    
    
    422
    
    
    
    (147
    )
    
    
    (34.8
    )%Impairment expense
    
    
    
    
    
    
    22
    
    
    
    22
    
    
    
    Operating loss
    
    
    (7,932
    )
    
    
    (4,719
    )
    
    
    (3,213
    )
    
    
    68.1
    %Interest expense, net
    
    
    1,151
    
    
    
    1,857
    
    
    
    706
    
    
    
    38.0
    %Other expense, net
    
    
    (58
    )
    
    
    (15
    )
    
    
    43
    
    
    
    (286.7
    )%Income taxes
    
    
    (77
    )
    
    
    136
    
    
    
    213
    
    
    
    156.6
    %Minority interest
    
    
    (8
    )
    
    
    17
    
    
    
    25
    
    
    
    147.1
    %Net loss
    
    $
    (8,940
    )
    
    $
    (6,714
    )
    
    $
    (2,226
    )
    
    
    (33.2
    )%Net loss per common share
    
    $
    (1.02
    )
    
    $
    (0.74
    )
    
    $
    (0.28
    )
    
    
    (37.8
    )%
 Net Loss
   Sales.
   7




---



##### 



Domestic Sales
  International Sales
  Segment Sales.
 ($000 except for %).Fiscal
    
    Training Services Group
    
    Control Systems Group
    
    TotalYear
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %2007
    
    
    9,293
    
    
    
    53.3
    %
    
    
    8,126
    
    
    
    46.7
    %
    
    
    17,419
    
    
    
    100.0
    %2006
    
    
    15,100
    
    
    
    60.2
    %
    
    
    9,969
    
    
    
    39.8
    %
    
    
    25,069
    
    
    
    100.0
    %
   Gross Profit.
  8




---



##### 



Selling and Administrative Expenses.
  Research and Development Expenses.
 
 Operating Loss.
     Interest Expense
  Other Income, net.
  (Benefit from)/Provision for Income Taxes.
    9




---



##### 



Fiscal 2006 versus Fiscal 2005
 Summary Table of ResultsYear ended
    
    Year ended
    
    Variance
    
    VarianceFebruary 24, 2006
    
    February 25, 2005
    
    $
    
    %(amounts in thousands)
    
    
    
    
    
    ( ) = UnfavorableSales:Domestic
    
    $
    9,140
    
    
    $
    11,998
    
    
    $
    (2,858
    )
    
    
    (23.8
    %)US Government
    
    
    2,586
    
    
    
    2,904
    
    
    
    (318
    )
    
    
    (11.0
    %)International
    
    
    13,343
    
    
    
    12,912
    
    
    
    431
    
    
    
    3.3
    %Total Sales
    
    
    25,069
    
    
    
    27,814
    
    
    
    (2,745
    )
    
    
    (9.9
    %)Gross Profit
    
    
    5,350
    
    
    
    6,176
    
    
    
    (826
    )
    
    
    (13.4
    %)Selling, general &
administrative
    
    
    9,625
    
    
    
    12,450
    
    
    
    2,825
    
    
    
    22.7
    %Research & development
    
    
    422
    
    
    
    856
    
    
    
    434
    
    
    
    50.7
    %Impairment expense
    
    
    22
    
    
    
    
    
    
    
    (22
    )
    
    
    n/aOperating loss
    
    
    (4,719
    )
    
    
    (7,130
    )
    
    
    2,411
    
    
    
    33.8
    %Interest expense, net
    
    
    1,857
    
    
    
    1,792
    
    
    
    (65
    )
    
    
    (3.6
    %)Other expense, net
    
    
    7
    
    
    
    308
    
    
    
    301
    
    
    
    97.7
    %Income taxes
    
    
    136
    
    
    
    (1,117
    )
    
    
    (1,253
    )
    
    
    (1,021.3
    %)Minority Interest
    
    
    17
    
    
    
    
    
    
    
    (17
    )
    
    
    n/aNet loss
    
    $
    (6,714
    )
    
    $
    (8,113
    )
    
    $
    1,399
    
    
    
    17.2
    %Net loss per common share
    
    $
    (0.74
    )
    
    $
    (1.06
    )
    
    $
    0.32
    
    
    
    30.2
    %
 Net Loss
  Sales.
   10




---



##### 



Domestic Sales
  International Sales
  Segment Sales.
 ($000 except for %)Training Services Group
    
    Control Systems GroupFiscal
    
    (formerly ATS)
    
    (formerly IG)
    
    TotalYear
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %2006
    
    
    15,100
    
    
    
    60.2
    %
    
    
    9,969
    
    
    
    39.8
    %
    
    
    25,069
    
    
    
    100.0
    %2005
    
    
    16,787
    
    
    
    60.3
    %
    
    
    11,027
    
    
    
    39.7
    %
    
    
    27,814
    
    
    
    100.0
    %
   11




---



##### 



Gross Profit.
  Selling and Administrative Expenses.
  Research and Development Expenses.
 
 Impairment Expense.
  Operating Loss.
     Interest Expense
  Bank Fees.
  12




---



##### 



Letter of Credit Fees.
  Other Income, net.
  Provision for/(Benefit from) Income Taxes.
    Liquidity and Capital Resources
          13




---



##### 



14




---



##### 



th
          15




---



##### 



Payments Due by Period (in thousands)Total
    
    
    Less Than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsLong-term debt,
including current
maturities
    
    $
    8,830
    
    
    $
    
    
    
    $
    8,830
    
    
    $
    
    
    
    $
    Operating leases
    
    
    616
    
    
    
    129
    
    
    
    394
    
    
    
    93
    
    
    
    Total
    
    $
    9,446
    
    
    $
    129
    
    
    $
    9,224
    
    
    $
    93
    
    
    $
    
      Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
 Accounting for Share-Based Payments
   Accounting Changes and Error Corrections
 Accounting Changes and Error Corrections
 
    
    a change in accounting principle from one generally accepted accounting principle
to another alternative that is considered preferable
    
    a change in an accounting estimate
    
    a change in the reporting entity
  16




---



##### 



Accounting for Uncertainty in Income Taxes
 Accounting for Uncertainty in Income
Taxes: an Interpretation of FASB Statement No. 109 ) Accounting for Income Taxes
 
    
    evaluation for recognition: An entity should recognize the financial statement benefit
of a tax position if it determines that it is more likely than not (i.e., a likelihood of
more than 50 percent) that the position will be sustained on examination.
    
    measurement of the benefit: The amount recognized should be the largest benefit that has
a greater than 50 percent likelihood of being realized upon ultimate settlement.
  Accounting for Misstatements in Prior Year Financial Statements
  Fair Value Measurements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and Financial Liabilities
 The
Fair Value Option for Financial Assets and Financial Liabilities
 Accounting for Inventory Costs
  
    
    abnormal amounts of idle facilities, freight, handling costs, and spoilage should be
recognized as charges of the current period.
    
    allocation of fixed production overheads to inventories should be based on the normal
capacity of the production facilities.
  17




---



##### 



Equity Compensation Plan Information
 Number of securitiesremaining availableNumber of securities to be
    
    
    Weighted-average exercise
    
    
    for future issuance underissued upon exercise of
    
    
    price of outstanding
    
    
    equity compensation plansoutstanding options,
    
    
    options,
    
    
    (excluding securitiesPlan Category
    
    warrants and rights
    
    
    warrants and rights
    
    
    reflected in column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    371,928
    
    
    $
    6.70
    
    
    
    1,198,882Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    N/A
    
    
    
    203,837Total
    
    
    371,928
    
    
    $
    6.70
    
    
    
    1,402,719
  Employee Stock Purchase Plan
  18




---



##### 



Report of Independent Registered Public Accounting Firm
 
     
 19




---



##### 



Environmental Tectonics Corporation
Consolidated Balance Sheets
 (amounts in thousands, except share information)
 February 23, 2007
    
    
    February 24, 2006ASSETSCash and cash equivalents
    
    $
    2,215
    
    
    $
    3,566Restricted cash
    
    
    20
    
    
    
    16Accounts receivable, net
    
    
    5,098
    
    
    
    6,021Costs and estimated earnings in excess of billings on
uncompleted long-term contracts
    
    
    2,816
    
    
    
    3,480Inventories
    
    
    4,739
    
    
    
    10,734Deferred tax asset
    
    
    1,262
    
    
    
    1,558Prepaid expenses and other current assets
    
    
    213
    
    
    
    564Total current assets
    
    
    16,363
    
    
    
    25,939Property, plant and equipment, net
    
    
    4,054
    
    
    
    4,392Construction in progress
    
    
    8,460
    
    
    
    Software development costs, net of accumulated
amortization of $10,949 and $9,882 in 2007 and 2006,
respectively
    
    
    2,158
    
    
    
    2,832Goodwill, net
    
    
    455
    
    
    
    455Other assets, net
    
    
    30
    
    
    
    49Total assets
    
    $
    31,520
    
    
    $
    33,667LIABILITIESAccounts payable  trade
    
    $
    2,254
    
    
    $
    2,111Billings in excess of costs and estimated earnings on
uncompleted long-term contracts
    
    
    1,400
    
    
    
    1,118Customer deposits
    
    
    794
    
    
    
    877Other accrued liabilities
    
    
    2,207
    
    
    
    2,013Total current liabilities
    
    
    6,655
    
    
    
    6,119Long-term obligations, less current portion:Subordinated convertible debt
    
    
    8,830
    
    
    
    8,376Deferred tax liability
    
    
    1,191
    
    
    
    1,558Total liabilities
    
    
    16,676
    
    
    
    16,053Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    53
    
    
    
    61STOCKHOLDERS EQUITYCumulative convertible preferred stock, $.05 par value,
15,000 shares authorized; 6,000 shares issued and
outstanding at February 23, 2007
    
    
    6,000
    
    
    
    Common stock, $.05 par value, 20,000,000 shares
authorized; 9,028,459 and 9,024,804 shares issued and
outstanding at February 23, 2007 and February 23, 2006,
respectively
    
    
    451
    
    
    
    451Capital contributed in excess of par value of common stock
    
    
    16,921
    
    
    
    16,584Accumulated other comprehensive loss
    
    
    (149
    )
    
    
    (249
    )(Accumulated deficit) retained earnings
    
    
    (8,432
    )
    
    
    767Total stockholders equity
    
    
    14,791
    
    
    
    17,553Total liabilities and stockholders equity
    
    $
    31,520
    
    
    $
    33,667
  20




---



##### 



Environmental Tectonics Corporation
Consolidated Statements of Operations
(amounts in thousands, except share information)
 52 Weeks Ended
    
    
    52 Weeks Ended
    
    
    52 Weeks EndedFebruary 23, 2007
    
    
    February 24, 2006
    
    
    February 25, 2005Net sales
    
    $
    17,419
    
    
    $
    25,069
    
    
    $
    27,814Cost of goods sold
    
    
    15,348
    
    
    
    19,719
    
    
    
    21,638Gross profit
    
    
    2,071
    
    
    
    5,350
    
    
    
    6,176Operating expenses:Selling and administrative
    
    
    9,434
    
    
    
    9,625
    
    
    
    12,450Research and development
    
    
    569
    
    
    
    422
    
    
    
    856Impairment expense
    
    
    
    
    
    
    22
    
    
    
    10,003
    
    
    
    10,069
    
    
    
    13,306Operating loss
    
    
    (7,932
    )
    
    
    (4,719
    )
    
    
    (7,130
    )Other expenses:Interest expense, net
    
    
    1,151
    
    
    
    1,857
    
    
    
    1,791Bank fees
    
    
    56
    
    
    
    93
    
    
    
    401Letter of credit fees
    
    
    70
    
    
    
    90
    
    
    
    51Other, net
    
    
    (184
    )
    
    
    (198
    )
    
    
    (143
    )1,093
    
    
    
    1,842
    
    
    
    2,100Loss before provision for (benefit from)
income taxes and minority interest
    
    
    (9,025
    )
    
    
    (6,561
    )
    
    
    (9,230
    )(Benefit from) provision for income taxes
    
    
    (77
    )
    
    
    136
    
    
    
    (1,117
    )Loss before minority interest
    
    
    (8,948
    )
    
    
    (6,697
    )
    
    
    (8,113
    )(Income)
loss attributable to minority interest
    
    
    8
    
    
    
    (17
    )
    
    
    Net loss
    
    $
    (8,940
    )
    
    $
    (6,714
    )
    
    $
    (8,113
    )Per share information:Loss per common share:Basic
    
    $
    (1.02
    )
    
    $
    (0.74
    )
    
    $
    (1.06
    )Diluted
    
    $
    (1.02
    )
    
    $
    (0.74
    )
    
    $
    (1.06
    )Weighted average common shares:Basic
    
    
    9,030,000
    
    
    
    9,021,000
    
    
    
    7,656,000Diluted
    
    
    9,030,000
    
    
    
    9,021,000
    
    
    
    7,656,000
  21




---



##### 



Environmental Tectonics Corporation
Consolidated Statements of Changes in Stockholders Equity
(amounts in thousands, except share information)
 For the fiscal years ended February 23, 2007, February 24, 2006 and February 25, 2005
 Capitalcontributedin excess of
    
    
    Accumulatedpar value of
    
    
    other
    
    
    Retained
    
    
    TotalPreferred
    
    
    Common Stock
    
    
    common
    
    
    comprehensive
    
    
    earnings
    
    
    stockholdersStock
    
    
    Shares
    
    
    Amount
    
    
    stock
    
    
    loss
    
    
    (deficit)
    
    
    equityBalance, February 27, 2004
    
    
    
    
    
    
    7,176,552
    
    
    
    359
    
    
    
    9,430
    
    
    
    (329
    )
    
    
    15,594
    
    
    
    25,054Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,113
    )
    
    
    (8,113
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    192
    
    
    
    
    
    
    
    192Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,921
    )Value of warrants issued in connection
with issuance of guarantee
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    571
    
    
    
    
    
    
    
    
    
    
    
    571Exercise of warrants
    
    
    
    
    
    
    1,440,868
    
    
    
    72
    
    
    
    4,406
    
    
    
    
    
    
    
    
    
    
    
    4,478Issuance of common stock
    
    
    
    
    
    
    373,831
    
    
    
    19
    
    
    
    1,981
    
    
    
    
    
    
    
    
    
    
    
    2,000Exercise of employee stock options and
Board of Directors compensation
    
    
    
    
    
    
    28,125
    
    
    
    
    
    
    
    173
    
    
    
    
    
    
    
    
    
    
    
    173Balance, February 25, 2005
    
    
    
    
    
    
    9,019,376
    
    
    
    450
    
    
    
    16,561
    
    
    
    (137
    )
    
    
    7,481
    
    
    
    24,355Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,714
    )
    
    
    (6,714
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (112
    )
    
    
    
    
    
    
    (112
    )Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,826
    )Exercise of employee stock options and
Board of Directors compensation
    
    
    
    
    
    
    5,428
    
    
    
    1
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    24Balance, February 24, 2006
    
    
    
    
    
    
    9,024,804
    
    
    
    451
    
    
    
    16,584
    
    
    
    (249
    )
    
    
    767
    
    
    
    17,553Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,940
    )
    
    
    (8,940
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    100Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,840
    )Stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    324Exercise of employee stock options and
Board of Directors compensation
    
    
    
    
    
    
    3,655
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Issuance of preferred stock
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Dividend payable on preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (259
    )
    
    
    (259
    )Balance, February 23, 2007
    
    
    6,000
    
    
    
    9,028,459
    
    
    $
    451
    
    
    $
    16,921
    
    
    $
    (149
    )
    
    $
    (8,432
    )
    
    $
    14,791
  22




---



##### 



Environmental Tectonics Corporation
Consolidated Statements of Cash Flows
(amounts in thousands)
 52 Weeks Ended
    
    
    52 Weeks Ended
    
    
    52 Weeks EndedFebruary 23,
    
    
    February 24,
    
    
    February 25,2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net loss
    
    $
    (8,940
    )
    
    $
    (6,714
    )
    
    $
    (8,113
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activitiesDepreciation and amortization
    
    
    1,857
    
    
    
    2,570
    
    
    
    2,414Accretion of debt discount
    
    
    454
    
    
    
    384
    
    
    
    326(Decrease) increase in allowance for accounts receivable and inventory
    
    
    (638
    )
    
    
    780
    
    
    
    274(Income) loss attributable to minority interest
    
    
    (8
    )
    
    
    17
    
    
    
    Impairment expense
    
    
    
    
    
    
    22
    
    
    
    Stock option compensation expense
    
    
    324
    
    
    
    
    
    
    
    Deferred income taxes (benefit)
    
    
    (71
    )
    
    
    
    
    
    
    (165
    )Changes in operating assets and liabilities:(Increase) decrease in assets:Accounts receivable
    
    
    1,520
    
    
    
    1,518
    
    
    
    11,108Costs and estimated earnings in excess of billings on
uncompleted long-term contracts
    
    
    664
    
    
    
    (147
    )
    
    
    2,000Inventories
    
    
    (2,806
    )
    
    
    (3,468
    )
    
    
    1,554Prepaid expenses and other current assets
    
    
    351
    
    
    
    480
    
    
    
    318Other assets
    
    
    19
    
    
    
    (26
    )
    
    
    Increase (decrease) in liabilities:Accounts payable
    
    
    143
    
    
    
    (782
    )
    
    
    462Billings in excess of costs and estimated earnings on
uncompleted long-term contracts
    
    
    282
    
    
    
    (415
    )
    
    
    588Customer deposits
    
    
    (83
    )
    
    
    (1,370
    )
    
    
    (1,410
    )Accrued income taxes
    
    
    43
    
    
    
    76
    
    
    
    266Other accrued liabilities
    
    
    (108
    )
    
    
    (774
    )
    
    
    101Net cash (used in) provided by operating activities
    
    
    (6,997
    )
    
    
    (7,849
    )
    
    
    9,723Cash flows from investing activities:Acquisition of equipment
    
    
    (308
    )
    
    
    (343
    )
    
    
    (285
    )Software development costs
    
    
    (155
    )
    
    
    (489
    )
    
    
    (1,272
    )Net cash used in investing activities
    
    
    (463
    )
    
    
    (832
    )
    
    
    (1,557
    )Cash flows from financing activities:Borrowings under credit facility
    
    
    3,000
    
    
    
    
    
    
    
    Payments under credit facility
    
    
    (3,000
    )
    
    
    
    
    
    
    (30
    )Payments on long-term bonds
    
    
    
    
    
    
    (4,370
    )
    
    
    (275
    )Issuance of preferred stock
    
    
    6,000
    
    
    
    
    
    
    
    (Increase) decrease in restricted cash
    
    
    (4
    )
    
    
    4,664
    
    
    
    (3,896
    )Net decrease in other long-term obligations
    
    
    
    
    
    
    
    
    
    
    (133
    )Issuance of common stock/warrants
    
    
    13
    
    
    
    24
    
    
    
    6,651Net cash provided by financing activities
    
    
    6,009
    
    
    
    318
    
    
    
    2,317Effect of exchange rates on cash
    
    
    100
    
    
    
    (112
    )
    
    
    192Net (decrease) increase in cash and cash equivalents
    
    
    (1,351
    )
    
    
    (8,475
    )
    
    
    10,675Cash and cash equivalents at beginning of year
    
    
    3,566
    
    
    
    12,041
    
    
    
    1,366Cash and cash equivalents at end of year
    
    $
    2,215
    
    
    $
    3,566
    
    
    $
    12,041Supplemental schedule of cash flow information:Interest paid
    
    $
    616
    
    
    $
    886
    
    
    $
    909Income taxes paid
    
    $
    
    
    
    $
    
    
    
    $
    5
    23




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements
 1. Nature of Business and Liquidity Matters:
  Training Services Group
 Control Systems Group
  2. Subsequent Event:
  3. Summary of Significant Accounting Policies:
 Principles of Consolidation:
  Use of Estimates:
    24




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
   Revenue Recognition:
  Cash and Cash Equivalents:
  Restricted Cash:
  Inventories:
  Depreciation of Property, Plant and Equipment:
  Goodwill:
  25




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  (Amounts in thousands)Goodwill
    
    $
    662Amortization
    
    
    (207
    )Net
    
    $
    455
  Capitalized Software Development Costs:
 ,
 Research and Development:
  Deferred Financing Costs:
   Income Taxes:
  Long-Lived Assets:
   Share-Based Compensation:
  26




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
           (amounts in thousands)
 52 Weeks Ended
    
    
    52 Weeks EndedFebruary 24, 2006
    
    
    February 25, 2005Net loss, as reported
    
    $
    (6,714
    )
    
    $
    (8,113
    )Deduct: Total stock-based
employee compensation expense
determined under fair value based
method for all awards, net of
related tax effects
    
    
    (91
    )
    
    
    (30
    )Pro forma net loss
    
    $
    (6,805
    )
    
    $
    (8,143
    )Loss per share:Basicas reported
    
    $
    (0.74
    )
    
    $
    (1.06
    )Basicpro forma
    
    $
    (0.75
    )
    
    $
    (1.06
    )Dilutedas reported
    
    $
    (0.74
    )
    
    $
    (1.06
    )Dilutedpro forma
    
    $
    (0.75
    )
    
    $
    (1.06
    )
 27




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  Advertising Costs:
  Earnings Per Common Share:
   (amounts in thousands)
 Fiscal years ended:February 23,
    
    February 24,
    
    February 25,2007
    
    2006
    
    2005Net loss
    
    $
    (8,940
    )
    
    $
    (6,714
    )
    
    $
    (8,113
    )Preferred stock dividend
    
    
    (259
    )
    
    
    
    
    
    
    Loss applicable to common stockholders
    
    $
    (9,199
    )
    
    $
    (6,714
    )
    
    $
    (8,113
    )Weighted average shares
    
    
    9,030,000
    
    
    
    9,021,000
    
    
    
    7,656,000Basic loss per common share
    
    $
    (1.02
    )
    
    $
    (0.74
    )
    
    $
    (1.06
    )Dilutive loss per common share:Effect of dilutive securities:Stock options (A)
    
    
    
    
    
    
    
    
    
    
    Convertible debt (B)
    
    
    
    
    
    
    
    
    
    
    Preferred stock (C)
    
    
    
    
    
    
    na
    
    
    
    naDilutive loss per common share:
    
    $
    (1.02
    )
    
    $
    (0.74
    )
    
    $
    (1.06
    )
      28




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 Recent Accounting Pronouncements
     Accounting Changes and Error Corrections
 
    
    a change in accounting principle from one generally accepted accounting principle
to another alternative that is considered preferable
    
    a change in an accounting estimate
    
    a change in the reporting entity
    Accounting for Uncertainty in Income
Taxes: an Interpretation of FASB Statement No. 109 ) Accounting for Income Taxes
 
    
    evaluation for recognition: An entity should recognize the financial statement benefit
of a tax position if it determines that it is more likely than not (i.e., a likelihood of
more than 50 percent) that the position will be sustained on examination.
    
    measurement of the benefit: The amount recognized should be the largest benefit that has
a greater than 50 percent likelihood of being realized upon ultimate settlement.
  29




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
    Fair Value Measurements
  The
Fair Value Option for Financial Assets and Financial Liabilities
   
    
    abnormal amounts of idle facilities, freight, handling costs, and spoilage should be
recognized as charges of the current period.
    
    allocation of fixed production overheads to inventories should be based on the normal
capacity of the production facilities.
   4. Accounts Receivable:
  (amounts in thousands)2007
    
    2006U.S. government receivables billed and unbilled
contract costs subject to negotiation
    
    $
    3,135
    
    
    $
    3,346U.S. commercial receivables billed
    
    
    1,525
    
    
    
    2,297International receivables billed
    
    
    806
    
    
    
    1,3435,466
    
    
    
    6,986Less allowance for doubtful accounts
    
    
    (368
    )
    
    
    (965
    )$
    5,098
    
    
    $
    6,021
 30




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
          31




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
    5. Costs and Estimated Earnings on Uncompleted Contracts:
    (amounts in thousands)2007
    
    
    2006Costs incurred on uncompleted long-term contracts
    
    $
    40,395
    
    
    $
    37,608Estimated earnings
    
    
    14,954
    
    
    
    7,74455,348
    
    
    
    45,352Less billings to date
    
    
    (53,932
    )
    
    
    (42,990
    )$
    1,416
    
    
    $
    2,362
 2007
    
    
    2006Included in accompanying balance sheets under the following captions:Costs and estimated earnings in excess of billings
on uncompleted long-term contracts
    
    $
    2,816
    
    
    $
    3,480Billings in excess of costs and estimated earnings on
uncompleted long-term contracts
    
    
    (1,400
    )
    
    
    (1,118
    )$
    1,416
    
    
    $
    2,362
  6. Inventories:
  (amounts in thousands)Work inRaw Material
    
    Process
    
    Finished Goods
    
    TotalFebruary 23, 2007
    
    $
    95
    
    
    $
    3,820
    
    
    $
    824
    
    
    $
    4,739February 24, 2006
    
    $
    158
    
    
    $
    8,803
    
    
    $
    1,773
    
    
    $
    10,734
  32




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 7. Property, Plant and Equipment:
  Estimated(amounts in thousands)
    
    
    useful2007
    
    
    2006
    
    
    livesLand
    
    $
    100
    
    
    $
    100Building and building additions
    
    
    3,763
    
    
    
    3,763
    
    
    40 yearsMachinery and equipment
    
    
    10,024
    
    
    
    10,008
    
    
3-5 yearsOffice furniture and equipment
    
    
    1,379
    
    
    
    1,195
    
    
    10 yearsBuilding improvements
    
    
    1,548
    
    
    
    1,460
    
    
    5-10 years16,814
    
    
    
    16,526Less accumulated depreciation
    
    
    (12,760
    )
    
    
    (12,134
    )Property, plant and equipment, net
    
    $
    4,054
    
    
    $
    4,392
  8. Long-Term Obligations and Credit Arrangements:
    (amounts in thousands)2007
    
    2006Credit facility payable to banks
    
    $
    
    
    
    $
    Subordinated convertible debt, net of unamortized
discount of $1,170 and $1,624 for 2007 and 2006,
respectively
    
    
    8,830
    
    
    
    8,3768,830
    
    
    
    8,376Less current portion
    
    
    
    
    
    
    $
    8,830
    
    
    $
    8,376
 33




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  2008
    
    
    2009
    
    
    8,8302010
    
    
    2011
    
    
    2012 and thereafter
    
    
    Total future obligations
    
    $
    8,830
  2007
    
    2006Approximate average loan balance (face)
    
    
    10,000
    
    
    
    10,000Maximum aggregate
    
    
    10,000
    
    
    
    10,000Weighted average interest rate
    
    
    8.00%
    *
    
    
    8.00%
    *
 
 *
    
    The interest rate in the Companys subordinated debt agreement is 10% per annum. However, Mr.
Lenfest reduced the interest rate to 8% per annum on a temporary basis for the period December 1,
2004 through November 30, 2007.        34




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
            35




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  Face Value
    
    $
    10,000Less value of conversion feature
    
    
    (1,400
    )Less value of warrants
    
    
    (1,209
    )7,391Accretion 2007
    
    
    454Accretion 2006
    
    
    384Accretion 2005
    
    
    326Accretion 2004
    
    
    275Carrying value at February 23, 2007
    
    $
    8,830
          36




---



##### 





Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued


th












9. Leases:








37



---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 10. Income Taxes:
  (amounts in thousands)52 Weeks Ended
    
    
    52 Weeks Ended
    
    
    52 Weeks EndedFebruary 23, 2007
    
    
    February 24, 2006
    
    
    February 25, 2005Currently (receivable)/payable:Federal
    
    $
    
    
    
    $
    
    
    
    $
    (909
    )State
    
    
    
    
    
    
    
    
    
    
    Foreign (benefit) taxes
    
    
    (6
    )
    
    
    136
    
    
    
    (44
    )(6
    )
    
    
    136
    
    
    
    (953
    )Deferred:Federal
    
    
    
    
    
    
    
    
    
    
    (198
    )State
    
    
    
    
    
    
    
    
    
    
    34Foreign benefit
    
    
    (71
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (165
    )$
    (77
    )
    
    $
    136
    
    
    $
    (1,117
    )
  52 Weeks Ended
    
    52 Weeks Ended
    
    52 Weeks EndedFebruary 23, 2007
    
    February 24, 2006
    
    February 25, 2005Statutory income tax
    
    
    (34.0
    )%
    
    
    (34.0
    )%
    
    
    (34.0
    )%State income tax, net of federal tax benefit
    
    
    (0.0
    )
    
    
    (4.6
    )
    
    
    0.2Research and experimentation and other
tax credits
    
    
    (1.6
    )
    
    
    (2.6
    )
    
    
    (1.6
    )Benefit of foreign and foreign-source
income or loss
    
    
    (0.9
    )
    
    
    1.2
    
    
    
    (0.3
    )Change in valuation allowance
    
    
    35.1
    
    
    
    41.9
    
    
    
    24.3Other, net
    
    
    0.5
    
    
    
    0.1
    
    
    
    (0.8
    )(0.9
    )%
    
    
    2.1
    %
    
    
    (12.2
    %)
  (amounts in thousands)2007
    
    
    2006
    
    
    2005Deferred tax assets:Vacation reserve
    
    
    66
    
    
    
    64
    
    
    
    51Inventory reserve
    
    
    317
    
    
    
    330
    
    
    
    214Receivable reserve
    
    
    137
    
    
    
    368
    
    
    
    184Warranty reserve
    
    
    63
    
    
    
    8
    
    
    
    8Compensation and other reserves
    
    
    114
    
    
    
    132
    
    
    
    136Stock options
    
    
    96
    
    
    
    
    
    
    
    Net operating loss and credits
    
    
    8,536
    
    
    
    5,436
    
    
    
    3,172Other, net
    
    
    82
    
    
    
    200
    
    
    
    2529,411
    
    
    
    6,538
    
    
    
    4,017Valuation Reserve
    
    
    (8,149
    )
    
    
    (4,980
    )
    
    
    (2,231
    )Total current deferred tax asset
    
    $
    1,262
    
    
    $
    1,558
    
    
    $
    1,786Deferred tax liabilities:Amortization of capitalized software
    
    $
    886
    
    
    $
    1,175
    
    
    $
    1,419Depreciation
    
    
    305
    
    
    
    383
    
    
    
    367Total non-current deferred tax liability
    
    $
    1,191
    
    
    $
    1,558
    
    
    $
    1,786
 38




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  11. Business Segment Information:
   (amounts in thousands)Training
    
    ControlServices
    
    SystemsTSG
    
    CSG
    
    TotalFiscal 2007Net sales
    
    $
    9,293
    
    
    $
    8,126
    
    
    $
    17,419Interest expense
    
    
    852
    
    
    
    299
    
    
    
    1,151Depreciation and amortization
    
    
    973
    
    
    
    884
    
    
    
    1,857Operating loss
    
    
    (3,991
    )
    
    
    (2,724
    )
    
    
    (6,715
    )Income tax
benefit
    
    
    (77
    )
    
    
    
    
    
    
    (77
    )Goodwill
    
    
    455
    
    
    
    
    
    
    
    455Identifiable assets
    
    
    7,698
    
    
    
    7,113
    
    
    
    14,811Expenditures for segment assets
    
    
    160
    
    
    
    148
    
    
    
    308Fiscal 2006Net sales
    
    $
    15,100
    
    
    $
    9,969
    
    
    $
    25,069Interest expense
    
    
    1,265
    
    
    
    592
    
    
    
    1,857Depreciation and amortization
    
    
    1,533
    
    
    
    1,037
    
    
    
    2,570Operating loss
    
    
    (3,555
    )
    
    
    (362
    )
    
    
    (3,917
    )Income tax expense
    
    
    136
    
    
    
    
    
    
    
    136Goodwill
    
    
    455
    
    
    
    
    
    
    
    455Identifiable assets
    
    
    15,809
    
    
    
    7,407
    
    
    
    23,216Expenditures for segment assets
    
    
    234
    
    
    
    109
    
    
    
    343Fiscal 2005Net sales
    
    $
    16,788
    
    
    $
    11,026
    
    
    $
    27,814Interest expense
    
    
    1,189
    
    
    
    602
    
    
    
    1,791Depreciation and amortization
    
    
    1,337
    
    
    
    1,078
    
    
    
    2,415Operating loss
    
    
    (4,768
    )
    
    
    (1,518
    )
    
    
    (6,286
    )Income tax benefit
    
    
    (715
    )
    
    
    (254
    )
    
    
    (969
    )Goodwill
    
    
    477
    
    
    
    
    
    
    
    477Identifiable assets
    
    
    14,899
    
    
    
    7,947
    
    
    
    22,846Expenditures for segment assets
    
    
    228
    
    
    
    57
    
    
    
    285
 2007
    
    
    2006
    
    
    2005Reconciliation to consolidated amounts:Corporate assets
    
    
    16,709
    
    
    
    10,451
    
    
    
25,063Total assets
    
    $
    31,520
    
    
    $
    33,667
    
    
    $
    47,909Segment operating (loss)/income
    
    $
    (6,715
    )
    
    $
    (3,917
    )
    
    $
    (6,286
    )Less interest expense
    
    
    (1,151
    )
    
    
    (1,857
    )
    
    
    (1,791
    )Income tax (provision) benefit
    
    
    77
    
    
    
    (136
    )
    
    
    969Total loss for segments
    
    
    (7,789
    )
    
    
    (5,910
    )
    
    
    (7,108
    )Corporate home office expense
    
    
    (1,217
    )
    
    
    (802
    )
    
    
    (846
    )Interest and other expenses
    
    
    58
    
    
    
    15
    
    
    
    (308
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    149Minority interest
    
    
    8
    
    
    
    (17
    )
    
    
    Net loss
    
    $
    (8,940
    )
    
    $
    (6,714
    )
    
    $
    (8,113
    )
 39




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
       12. Stock Options:
  February 23, 2007
    
    
    February 24, 2006
    
    
    February 25, 2005Weighted
    
    
    
    
    
    
    Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    average
    
    
    
    
    
    
    averageExercise
    
    
    
    
    
    
    exercise
    
    
    
    
    
    
    exerciseShares
    
    
    price
    
    
    Shares
    
    
    price
    
    
    Shares
    
    
    priceOutstanding at beginning of year
    
    
    247,939
    
    
    $
    7.31
    
    
    
    276,162
    
    
    $
    7.30
    
    
    
    376,002
    
    
    $
    7.21Granted
    
    
    124,639
    
    
    
    5.46
    
    
    
    
    
    
    
    
    
    
    
    33,586
    
    
    
    7.24Exercised
    
    
    (650
    )
    
    
    3.31
    
    
    
    (1,600
    )
    
    
    6.35
    
    
    
    (25,700
    )
    
    
    6.35Forfeited
    
    
    
    
    
    
    
    
    
    
    (26,623
    )
    
    
    7.18
    
    
    
    (107,726
    )
    
    
    7.18Outstanding at end of year
    
    
    371,928
    
    
    
    6.70
    
    
    
    247,939
    
    
    
    7.31
    
    
    
    276,162
    
    
    
    7.30Options exercisable at year end
    
    
    310,496
    
    
    
    
    
    
    
    222,750
    
    
    
    
    
    
    
    242,576Weighted average fair value of
options granted during the year
    
    
    
    
    
    $
    6.76
    
    
    
    
    
    
    
    3.58
    
    
    
    
    
    
    $
    3.58
 40




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  Options outstanding
    
    
    
    
    
    Options exercisableWeightedNumber
    
    average
    
    Weighted
    
    Number
    
    WeightedOutstanding at
    
    remaining
    
    average
    
    exercisable at
    
    averageFebruary 23,
    
    contractual
    
    exercise
    
    February 23,
    
    exerciseRange of exercise prices
    
    2007
    
    life (years)
    
    price
    
    2007
    
    price$5.00 to $5.12
    
    
    114,500
    
    
    6.7 years
    
    $
    5.08
    
    
    
    114,500
    
    
    $
    5.08$7.24 to $7.81
    
    
    257,428
    
    
    3.8 years
    
    $
    7.41
    
    
    
    195,996
    
    
    $
    7.73Total
    
    
    371,928
    
    
    
    
    
    
    
    
    
    
    
    310,496
 13. Commitments and Contingencies
     14. Employee Benefit Plan:
   41




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 15. Quarterly Consolidated Financial Information (Unaudited):
  Quarter ended:Fiscal Year 2007
    
    May 26
    
    August 25
    
    November 24
    
    February 23Net sales
    
    $
    4,575
    
    
    $
    4,329
    
    
    $
    4,718
    
    
    $
    3,797Gross profit (loss)
    
    
    1,014
    
    
    
    494
    
    
    
    1,030
    
    
    
    (467
    )Operating loss
    
    
    (1,701
    )
    
    
    (1,913
    )
    
    
    (1,581
    )
    
    
    (2,737
    )Loss before income taxes
    
    
    (2,033
    )
    
    
    (2,154
    )
    
    
    (1,829
    )
    
    
    (3,009
    )Minority interest
    
    
    (8
    )
    
    
    (16
    )
    
    
    33
    
    
    
    (23
    )Net loss
    
    
    (2,030
    )
    
    
    (2,148
    )
    
    
    (1,866
    )
    
    
    (2,896
    )Loss per common share:Basic
    
    
    ($0.23
    )
    
    
    ($0.24
    )
    
    
    ($0.22
    )
    
    
    ($0.33
    )Diluted
    
    
    ($0.23
    )
    
    
    ($0.24
    )
    
    
    ($0.22
    )
    
    
    ($0.33
    )
 Quarter ended:Fiscal Year 2006
    
    May 27
    
    August 26
    
    November 25
    
    February 24Net sales
    
    $
    5,915
    
    
    $
    6,255
    
    
    $
    6,206
    
    
    $
    6,693Gross profit
    
    
    1,482
    
    
    
    1,253
    
    
    
    1,367
    
    
    
    1,248Operating loss
    
    
    (1,152
    )
    
    
    (1,149
    )
    
    
    (986
    )
    
    
    (1,410
    )Loss before income taxes
    
    
    (1,726
    )
    
    
    (1,619
    )
    
    
    (1,317
    )
    
    
    (1,899
    )Minority interest
    
    
    (3
    )
    
    
    1
    
    
    
    6
    
    
    
    13Net loss
    
    
    (1,723
    )
    
    
    (1,620
    )
    
    
    (1,327
    )
    
    
    (2,044
    )Loss per common share:Basic
    
    
    ($0.19
    )
    
    
    ($0.18
    )
    
    
    ($0.15
    )
    
    
    ($0.23
    )Diluted
    
    
    ($0.19
    )
    
    
    ($0.18
    )
    
    
    ($0.15
    )
    
    
    ($0.23
    )
 Quarter ended:Fiscal Year 2005
    
    May 28
    
    August 27
    
    November 26
    
    February 25Net sales
    
    $
    6,175
    
    
    $
    6,523
    
    
    $
    7,751
    
    
    $
    7,365Gross profit
    
    
    994
    
    
    
    1,021
    
    
    
    1,637
    
    
    
    2,524Operating loss
    
    
    (1,645
    )
    
    
    (2,392
    )
    
    
    (2,757
    )
    
    
    (336
    )Loss before income taxes
    
    
    (2,074
    )
    
    
    (2,819
    )
    
    
    (3,254
    )
    
    
    (1,082
    )Minority interest
    
    
    1
    
    
    
    0
    
    
    
    (1
    )
    
    
    0Net loss
    
    
    (1,461
    )
    
    
    (1,984
    )
    
    
    (3,249
    )
    
    
    (1,419
    )Loss per common share:Basic
    
    
    ($0.19
    )
    
    
    ($0.26
    )
    
    
    ($0.43
    )
    
    
    ($0.18
    )Diluted
    
    
    ($0.19
    )
    
    
    ($0.26
    )
    
    
    ($0.43
    )
    
    
    ($0.18
    )
 42




---



##### 



ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
 Column A
    
    Column B
    
    Column C
    
    Column D
    
    Column ECharges /Balance at
    
    (credits) to
    
    
    
    
    
    Balance atbeginning
    
    costs or
    
    
    
    
    
    endDescription
    
    of period
    
    expenses
    
    Reductions
    
    of periodFiscal year ended February 23, 2007Valuation and qualifying accounts related to:Accounts receivable
    
    $
    965
    
    
    $
    18
    
    
    $
    615
    
    
    $
    368Inventory
    
    
    1,032
    
    
    
    446
    
    
    
    487
    
    
    
    991Property, plant and equipment
    
    
    12,134
    
    
    
    626
    
    
    
    
    
    
    
    12,760Software development costs
    
    
    9,882
    
    
    
    1,231
    
    
    
    
    
    
    
    11,113Fiscal year ended February 24, 2006Valuation and qualifying accounts related to:Accounts receivable
    
    $
    486
    
    
    $
    510
    
    
    $
    31
    
    
    $
    965Inventory
    
    
    731
    
    
    
    823
    
    
    
    522
    
    
    
    1,032Property, plant and equipment
    
    
    11,491
    
    
    
    643
    
    
    
    
    
    
    
    12,134Software development costs
    
    
    8,658
    
    
    
    1,224
    
    
    
    
    
    
    
    9,882Other assets
    
    
    1,180
    
    
    
    
    
    
    
    725
    
    
    
    455Fiscal year ended February 25, 2005Valuation and qualifying accounts related to:Accounts receivable
    
    $
    379
    
    
    $
    126
    
    
    $
    19
    
    
    $
    486Inventory
    
    
    564
    
    
    
    300
    
    
    
    133
    
    
    
    731Property, plant and equipment
    
    
    10,651
    
    
    
    840
    
    
    
    
    
    
    
    11,491Software development costs
    
    
    7,670
    
    
    
    988
    
    
    
    
    
    
    
    8,658Other assets
    
    
    434
    
    
    
    746
    
    
    
    
    
    
    
    1,180
 43