EXHIBIT 13
 PORTIONS OF
ENVIRONMENTAL TECTONICS CORPORATION
2008
ANNUAL REPORT TO STOCKHOLDERS
 FINANCIAL REVIEW
  2007Fiscal Year End
    
    2008
    
    
    (restated)*
    
    
    2006Net sales
    
    $
    22,730
    
    
    $
    17,419
    
    
    $
    25,069Gross profit
    
    
    4,246
    
    
    
    2,071
    
    
    
    5,350Operating (loss) income
    
    
    (12,043
    )
    
    
    (10,936
    )
    
    
    (4,719
    )Net loss
    
    
    (13,895
    )
    
    
    (11,944
    )
    
    
    (6,714
    )Loss per common share:Basic
    
    
    (1.61
    )
    
    
    (1.35
    )
    
    
    (0.74
    )Diluted
    
    
    (1.61
    )
    
    
    (1.35
    )
    
    
    (0.74
    )Working capital
    
    
    1,742
    
    
    
    5,513
    
    
    
    18,262Long-term obligations
    
    
    18,192
    
    
    
    8,830
    
    
    
    8,376Total assets
    
    
    37,625
    
    
    
    27,325
    
    
    
    32,109Total stockholders equity
    
    
    (8,831
    )
    
    
    5,787
    
    
    
    17,553Weighted average common shares:Basic
    
    
    9,030,000
    
    
    
    9,030,000
    
    
    
    9,021,000Diluted
    
    
    9,030,000
    
    
    
    9,030,000
    
    
    
    9,021,000
 
 *
    
    restated for reserve of claim receivable. See Note 1  Subsequent Events in the accompanying
notes to the Consolidated Financial Statements.   1




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Managements Discussion and Analysis of Financial Condition and Results of Operations
 FORWARD-LOOKING STATEMENTS
     Overview
   
    
    contract awards for aero medical products which occurred late in the fiscal period and
which consequently did not contribute materially to our operating results for fiscal 2008;
    
    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




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
    
    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;
  
    
    higher costs of capital and amortization of deferred finance charges;
  
    
    litigation and claims costs;
  
    
    cash flow;
     3




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4




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
    
    Complete the technology development of ATFS.
    
    Book at least one significant pilot training contract for the NASTAR Center.
    
    Finalize production of the two TacModules for the U.S. Government.
    
    Begin validation of the ATFS technology.
    
    Book at least one significant international contract for aeromedical equipment.
    
    Maintain higher order booking rates for our Control Systems Group products.
    
    Develop alternate sources for acrylic tubes used in our hyperbaric monoplace chamber.
    
    Complete Core 4 software enhancements in our ADMS line.
    
    Finalize our only outstanding major litigation case either through settlement, mediation
or by judicial determination.
  
    
    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.
 5




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Critical Accounting Policies
  6




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7




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Results of Operations
  Fiscal 2008 versus Fiscal 2007
 (amounts in thousands)  Summary Table of Results
 Year ended
    
    Year ended
    
    Variance
    
    VarianceFebruary 29, 2008
    
    February 23, 2007*
    
    $
    
    %(restated)
    
    () = UnfavorableSales:Domestic
    
    $
    13,478
    
    
    $
    6,012
    
    
    $
    7,466
    
    
    
    124.2
    %US Government
    
    
    1,828
    
    
    
    586
    
    
    
    1,242
    
    
    
    211.9
    %International
    
    
    7,424
    
    
    
    10,821
    
    
    
    (3,397
    )
    
    
    (31.4
    )%Total Sales
    
    
    22,730
    
    
    
    17,419
    
    
    
    5,311
    
    
    
    30.5
    %Gross Profit
    
    
    4,246
    
    
    
    2,071
    
    
    
    2,175
    
    
    
    105.0
    %Selling, general and
administrative
    
    
    11,518
    
    
    
    9,434
    
    
    
    (2,084
    )
    
    
    (22.1
    )%Claim settlement costs
    
    
    3,638
    
    
    
    3,004
    
    
    
    (634
    )
    
    
    (21.1
    )%Impairment expense
    
    
    455
    
    
    
    
    
    
    
    (455
    )
    
    
    N/AResearch and development
    
    
    678
    
    
    
    569
    
    
    
    (109
    )
    
    
    (19.2
    )%Operating loss
    
    
    (12,043
    )
    
    
    (10,936
    )
    
    
    (1,107
    )
    
    
    (10.1
    )%Interest expense, net
    
    
    1,582
    
    
    
    1,151
    
    
    
    (431
    )
    
    
    (37.4
    )%Other expense (income), net
    
    
    236
    
    
    
    (58
    )
    
    
    (294
    )
    
    
    (506.9
    )%Income taxes
    
    
    37
    
    
    
    (77
    )
    
    
    (114
    )
    
    
    (148.1
    )%Minority interest
    
    
    (3
    )
    
    
    (8
    )
    
    
    (5
    )
    
    
    (62.5
    )%Net loss
    
    $
    (13,895
    )
    
    $
    (11,944
    )
    
    $
    (1,951
    )
    
    
    (16.3
    )%Net loss per common share
    
    $
    (1.61
    )
    
    $
    (1.35
    )
    
    $
    (0.26
    )
    
    
    (19.3
    )%
 
 *
    
    restated for reserve of claim receivable. See Note 1  Subsequent Events in the accompanying
notes to the Consolidated Financial Statements. Net Loss
  Sales.
   8




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Domestic Sales
  International Sales
   Segment Sales.
 ($000 except for %)Fiscal
    
    Training Services Group
    
    Control Systems Group
    
    TotalYear
    
    $
    
    %
    
    $
    
    %
    
    $
    
    %2008
    
    
    7,844
    
    
    
    34.5
    %
    
    
    14,886
    
    
    
    65.5
    %
    
    
    22,730
    
    
    
    100.0
    %2007
    
    
    9,293
    
    
    
    53.3
    %
    
    
    8,126
    
    
    
    46.7
    %
    
    
    17,419
    
    
    
    100.0
    %
   Gross Profit.
 9




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##### 



Selling and Administrative Expenses.
  Claim Settlement Costs
  Impairment Expense
  Research and Development Expenses.
  Operating Loss.
   Interest Expense
  Other Expense, net.
  Provision for Income Taxes.
    10




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Liquidity and Capital Resources
            11




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12




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##### 



Payments Due by Period (in thousands)Less Than
    
    
    1-3
    
    
    4-5
    
    
    After 5Total
    
    
    1 Year
    
    
    Years
    
    
    Years
    
    
    YearsLong-term debt,
including current
maturities
    
    $
    18,201
    
    
    $
    9
    
    
    $
    18,192
    
    
    $
    
    
    
    $
    Operating leases
    
    
    487
    
    
    
    131
    
    
    
    356
    
    
    
    
    
    
    
    Total
    
    $
    18,688
    
    
    $
    140
    
    
    $
    18,548
    
    
    $
    
    
    
    $
    
  13




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14




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Off-Balance Sheet Arrangements
  Recent Accounting Pronouncements
    Equity Compensation Plan Information
 Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnPlan Category
    
    and rights
    
    
    and rights
    
    
    (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    367,487
    
    
    $
    6.70
    
    
    
    1,203,323Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    N/A
    
    
    
    202,663Total
    
    
    367,487
    
    
    $
    6.70
    
    
    
    1,405,986
  Employee Stock Purchase Plan
  15




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Report of Independent Registered Public Accounting Firm
 
     
 16




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##### 



Environmental Tectonics Corporation
Consolidated Balance Sheets
(in thousands, except share information)
 February 29, 2008
    
    
    February 23, 2007(restated)ASSETSCash and cash equivalents
    
    $
    1,871
    
    
    $
    2,215Restricted cash
    
    
    4,526
    
    
    
    20Accounts receivable, net of allowance for bad debt
of $746 and $3,372
    
    
    3,231
    
    
    
    2,094Costs and estimated earnings in excess of billings
on uncompleted long-term contracts
    
    
    3,422
    
    
    
    2,816Inventories
    
    
    6,773
    
    
    
    4,739Deferred tax asset
    
    
    43
    
    
    
    71Prepaid expenses and other current assets
    
    
    790
    
    
    
    213Total current assets
    
    
    20,656
    
    
    
    12,168Property, plant and equipment, at cost, net
    
    
    15,208
    
    
    
    4,054Construction in progress
    
    
    141
    
    
    
    8,460Software development costs, net of accumulated
amortization of $12,161 and $10,949 in 2008 and
2007
    
    
    1,614
    
    
    
    2,158Goodwill
    
    
    
    
    
    
    455Other assets
    
    
    6
    
    
    
    30Total assets
    
    $
    37,625
    
    
    $
    27,325LIABILITIESCurrent portion of long-term debt
    
    $
    9
    
    
    $
    Accounts payable  trade
    
    
    3,060
    
    
    
    2,254Billings in excess of costs and estimated earnings
on uncompleted long-term contracts
    
    
    6,491
    
    
    
    1,400Customer deposits
    
    
    2,989
    
    
    
    794Accrued claim settlement costs
    
    
    2,275
    
    
    
    Accrued interest and dividends
    
    
    2,287
    
    
    
    668Other accrued liabilities
    
    
    1,803
    
    
    
    1,539Total current liabilities
    
    
    18,914
    
    
    
    6,655Long-term obligations, less current portion:Credit facility payable to bank
    
    
    8,810
    
    
    
    Subordinated convertible debt
    
    
    9,366
    
    
    
    8,830Other long-term debt
    
    
    16
    
    
    
    18,192
    
    
    
    8,830Total liabilities
    
    
    37,106
    
    
    
    15,485Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    50
    
    
    
    53Cumulative convertible participating preferred
stock, Series B, $.05 par value, 15,000 shares
authorized; 6,000 shares issued and outstanding at
February 29, 2008 and February 23, 2007
    
    
    6,000
    
    
    
    6,000Cumulative convertible participating preferred
stock, Series C, $.05 par value, 3,300 shares
authorized, issued and outstanding at February 29,
2008
    
    
    3,300
    
    
    
    STOCKHOLDERS DEFICIENCYCommon stock, $.05 par value, 20,000,000 shares
authorized; 9,035,355 and 9,028,459 shares issued
and outstanding at February 29, 2008 and February
23, 2007
    
    
    451
    
    
    
    451Additional paid-in capital
    
    
    16,139
    
    
    
    16,662Accumulated other comprehensive loss
    
    
    (121
    )
    
    
    (149
    )Accumulated deficit
    
    
    (25,300
    )
    
    
    (11,177
    )Total stockholders (deficiency) equity
    
    
    (8,831
    )
    
    
    5,787Total liabilities and stockholders deficiency
    
    $
    37,625
    
    
    $
    27,325
  17




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Environmental Tectonics Corporation
Consolidated Statements of Operations
(amounts in thousands, except share information)
 53 Weeks Ended
    
    
    52 Weeks EndedFebruary 29, 2008
    
    
    February 23, 2007(restated)Net sales
    
    $
    22,730
    
    
    $
    17,419Cost of goods sold
    
    
    18,484
    
    
    
    15,348Gross profit
    
    
    4,246
    
    
    
    2,071Operating expenses:Selling and administrative, including
stock compensation expense of $114 and
$324
    
    
    11,518
    
    
    
    9,434Claim settlement costs
    
    
    3,638
    
    
    
    3,004Impairment charge
    
    
    455
    
    
    
    Research and development
    
    
    678
    
    
    
    56916,289
    
    
    
    13,007Operating loss
    
    
    (12,043
    )
    
    
    (10,936
    )Other expenses:Interest expense, net
    
    
    1,582
    
    
    
    1,151Other expense (income), net
    
    
    236
    
    
    
    (58
    )1,818
    
    
    
    1,093Loss before provision for (benefit from)
income taxes and minority interest
    
    
    (13,861
    )
    
    
    (12,029
    )Provision for (benefit from) income taxes
    
    
    37
    
    
    
    (77
    )Loss before minority interest
    
    
    (13,898
    )
    
    
    (11,952
    )(Income) loss attributable to minority interest
    
    
    (3
    )
    
    
    8Net loss
    
    $
    (13,895
    )
    
    $
    (11,944
    )Preferred stock dividends
    
    
    (661
    )
    
    
    (259
    )Loss applicable to common shareholders
    
    $
    (14,556
    )
    
    $
    (12,203
    )Per share information:Loss per common share applicable to common
shareholders:Basic and diluted
    
    $
    (1.61
    )
    
    $
    (1.35
    )Weighted average common shares:Basic and diluted
    
    
    9,030,000
    
    
    
    9,030,000
  18




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##### 



Environmental Tectonics Corporation
Consolidated Statements of Changes in Stockholders Deficiency
(amounts in thousands, except share information)
 For the 53 weeks ended February 29, 2008 and the 52 weeks ended February 23, 2007
 AccumulatedAdditional
    
    
    other
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    comprehensive
    
    
    Accumulated
    
    
    stockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    loss
    
    
    deficit
    
    
    deficiencyBalance, February 24, 2006
    
    
    9,024,804
    
    
    $
    451
    
    
    $
    16,584
    
    
    $
    (249
    )
    
    $
    767
    
    
    $
    17,553Net loss for the year (restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,944
    )
    
    
    (11,944
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100
    
    
    
    
    
    
    
    100Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,844
    )Stock compensation expense
    
    
    
    
    
    
    
    
    
    
    324
    
    
    
    
    
    
    
    
    
    
    
    324Issuance of
stock under employee Stock Purchase Plan and
Board of Directors compensation
    
    
    3,655
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Accumulated preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (259
    )
    
    
    
    
    
    
    
    
    
    
    (259
    )Balance, February 23, 2007 (restated)
    
    
    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
    
    
    $
    (121
    )
    
    $
    (25,300
    )
    
    $
    (8,831
    )
  19




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Environmental Tectonics Corporation
Consolidated Statements of Cash Flows
(amounts in thousands)
 52 Weeks Ended53 Weeks Ended
    
    
    February 23,February 29,
    
    
    20072008
    
    
    (restated)Cash flows from operating activities:Net loss
    
    $
    (13,895
    )
    
    $
    (11,944
    )Adjustments to reconcile net loss to net cash (used in) provided by
operating activitiesDepreciation and amortization
    
    
    1,996
    
    
    
    1,857Accretion of debt discount
    
    
    536
    
    
    
    454(Decrease) increase in allowance for accounts receivable and inventory
    
    
    687
    
    
    
    2,366(Income) attributable to minority interest
    
    
    (3
    )
    
    
    (8
    )Impairment charge
    
    
    455
    
    
    
    Stock compensation expense
    
    
    138
    
    
    
    324Deferred income taxes (benefit)
    
    
    28
    
    
    
    (71
    )Changes in operating assets and liabilities:(Increase) decrease in assets:Accounts receivable
    
    
    (1,601
    )
    
    
    1,520Costs and estimated earnings in excess of billings on
uncompleted long-term contracts
    
    
    (606
    )
    
    
    664Inventories
    
    
    (2,257
    )
    
    
    (2,806
    )Prepaid expenses and other current assets
    
    
    (577
    )
    
    
    351Other assets
    
    
    24
    
    
    
    19Increase (decrease) in liabilities:Accounts payable
    
    
    806
    
    
    
    143Billings in excess of costs and estimated earnings on
uncompleted long-term contracts
    
    
    5,091
    
    
    
    282Customer deposits
    
    
    2,195
    
    
    
    (83
    )Accrued income taxes
    
    
    
    
    
    
    43Accrued claim settlement costs
    
    
    2,275
    
    
    
    Accrued interest and dividends
    
    
    958
    
    
    
    454Other accrued liabilities
    
    
    264
    
    
    
    (562
    )Net cash used in operating activities
    
    
    (3,486
    )
    
    
    (6,997
    )Cash flows from investing activities:Acquisition of equipment
    
    
    (3,618
    )
    
    
    (308
    )Software development costs
    
    
    (669
    )
    
    
    (155
    )Net cash used in investing activities
    
    
    (4,287
    )
    
    
    (463
    )Cash flows from financing activities:Borrowings under credit facility
    
    
    8,810
    
    
    
    Issuance of notes payable, Lenfest
    
    
    4,000
    
    
    
    3,000Repayments of notes payable, Lenfest
    
    
    (4,000
    )
    
    
    (3,000
    )Other debt obligations
    
    
    25
    
    
    
    Issuance of preferred stock
    
    
    3,300
    
    
    
    6,000Increase in restricted cash
    
    
    (4,506
    )
    
    
    (4
    )Issuance of common stock/warrants
    
    
    
    
    
    
    13Net cash provided by financing activities
    
    
    7,629
    
    
    
    6,009Effect of other comprehensive income
    
    
    (200
    )
    
    
    100Net (decrease) increase in cash and cash equivalents
    
    
    (344
    )
    
    
    (1,351
    )Cash and cash equivalents at beginning of year
    
    
    2,215
    
    
    
    3,566Cash and cash equivalents at end of year
    
    $
    1,871
    
    
    $
    2,215Supplemental schedule of cash flow information:Interest paid
    
    $
    230
    
    
    $
    616Income taxes paid
    
    
    
    
    
    
    
    20




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##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements
 1. Restatement of Previously Issued Financial Statements
  Settlement with U.S. Navy
         Audit Committee Review and Regulatory Compliance Matters
   21




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Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
 Change in Independent Registered Public Accounting Firm
  Restatement of Previously Filed Financial Statements
         Additional Matters Regarding H.F. Lenfest
 Lenfest Acquisition Proposal
  Lenfest Letter Agreement
  Failure to Meet Financial Covenants under Credit Agreement
   22




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##### 



Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
  Restated Statements of Operations amounts:
  (unaudited)
(in thousands, except share and per share information)
 ClaimAs Originally
    
    
    Receivable
    
    
    AsReported
    
    
    Impairment
    
    
    RestatedNet sales
    
    $
    4,718
    
    
    $
    
    
    
    $
    4,718Cost of goods sold
    
    
    3,688
    
    
    
    
    
    
    
    3,688Gross profit
    
    
    1,030
    
    
    
    
    
    
    
    1,030Operating expenses:Selling and administrative
    
    
    2,568
    
    
    
    
    
    
    
    2,568Claim settlement costs
    
    
    
    
    
    
    3,004
    
    
    
    3,004Research and development
    
    
    43
    
    
    
    
    
    
    
    432,611
    
    
    
    3,004
    
    
    
    5,615Operating loss
    
    
    (1,581
    )
    
    
    (3,004
    )
    
    
    (4,585
    )Other expenses:Interest expense
    
    
    291
    
    
    
    
    
    
    
    291Other income, net
    
    
    (43
    )
    
    
    
    
    
    
    (43
    )248
    
    
    
    
    
    
    
    248Loss before income taxes
    
    
    (1,829
    )
    
    
    (3,004
    )
    
    
    (4,833
    )Provision for income taxes
    
    
    4
    
    
    
    
    
    
    
    4Loss before minority interest
    
    
    (1,833
    )
    
    
    (3,004
    )
    
    
    (4,837
    )Income attributable to minority interest
    
    
    33
    
    
    
    
    
    
    
    33Net loss
    
    $
    (1,866
    )
    
    $
    (3,004
    )
    
    $
    (4,870
    )Preferred stock dividend
    
    
    (90
    )
    
    
    
    
    
    
    (90
    )Loss applicable to common shareholders
    
    $
    (1,956
    )
    
    $
    (3,004
    )
    
    $
    (4,960)
    )Per share information:Basic and diluted loss per share
applicable to common shareholders
    
    $
    (0.22
    )
    
    $
    (0.33
    )
    
    $
    (0.55
    )Basic and diluted weighted average
number of common shares
    
    
    9,027,000
    
    
    
    9,027,000
    
    
    
    9,027,000
 23




---



##### 



Environmental Tectonics Corporation  Notes to the Condensed Consolidated Financial Statements, continued
  (unaudited)
(in thousands, except share and per share information)
 ClaimAs Originally
    
    
    Receivable
    
    
    AsReported
    
    
    Impairment
    
    
    RestatedNet sales
    
    $
    13,622
    
    
    $
    
    
    
    $
    13,622Cost of goods sold
    
    
    11,084
    
    
    
    
    
    
    
    11,084Gross profit
    
    
    2,538
    
    
    
    
    
    
    
    2,538Operating expenses:Selling and administrative
    
    
    7,204
    
    
    
    
    
    
    
    7,204Claim settlement costs
    
    
    
    
    
    
    3,004
    
    
    
    3,004Research and development
    
    
    529
    
    
    
    
    
    
    
    5297,733
    
    
    
    3,004
    
    
    
    10,737Operating loss
    
    
    (5,195
    )
    
    
    (3,004
    )
    
    
    (8,199
    )Other expenses:Interest expense
    
    
    857
    
    
    
    
    
    
    
    857Other income, net
    
    
    (36
    )
    
    
    
    
    
    
    (36
    )821
    
    
    
    
    
    
    
    821Loss before income taxes
    
    
    (6,016
    )
    
    
    (3,004
    )
    
    
    (9,020
    )Provision for income taxes
    
    
    13
    
    
    
    
    
    
    
    13Loss before minority interest
    
    
    (6,029
    )
    
    
    (3,004
    )
    
    
    (9,033
    )Income attributable to minority interest
    
    
    16
    
    
    
    
    
    
    
    16Net loss
    
    $
    (6,045
    )
    
    $
    (3,004
    )
    
    $
    (9,049
    )Preferred stock dividend
    
    
    (169
    )
    
    
    
    
    
    
    (169
    )Loss applicable to common shareholders
    
    $
    (6,214
    )
    
    $
    (3,004
    )
    
    $
    (9,218
    )Per share information:Basic and diluted loss per share
applicable to common shareholders
    
    $
    (0.69
    )
    
    $
    (0.33
    )
    
    $
    (1.02
    )Basic and diluted weighted average
number of common shares
    
    
    9,031,000
    
    
    
    9,031,000
    
    
    
    9,031,000
 24




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
  (unaudited)  (in thousands, except share and per share information)
 As Originally
    
    
    Claim Receivable
    
    
    AsReported
    
    
    Impairment
    
    
    RestatedNet sales
    
    $
    17,419
    
    
    $
    
    
    
    $
    17,419Cost of goods sold
    
    
    15,348
    
    
    
    
    
    
    
    15,348Gross profit
    
    
    2,071
    
    
    
    
    
    
    
    2,071Operating expenses:Selling and administrative
    
    
    9,434
    
    
    
    
    
    
    
    9,434Claim settlement costs
    
    
    
    
    
    
    3,004
    
    
    
    3,004Research and development
    
    
    569
    
    
    
    
    
    
    
    56910,003
    
    
    
    3,004
    
    
    
    13,007Operating loss
    
    
    (7,932
    )
    
    
    (3,004
    )
    
    
    (10,936
    )Other expenses:Interest expense
    
    
    1,151
    
    
    
    
    
    
    
    1,151Other income, net
    
    
    (58
    )
    
    
    
    
    
    
    (58
    )1,093
    
    
    
    
    
    
    
    1,093Loss before income taxes
    
    
    (9,025
    )
    
    
    (3,004
    )
    
    
    (12,029
    )Benefit from income taxes
    
    
    (77
    )
    
    
    
    
    
    
    (77
    )Loss before minority interest
    
    
    (8,948
    )
    
    
    (3,004
    )
    
    
    (11,952
    )Loss attributable to minority interest
    
    
    (8
    )
    
    
    
    
    
    
    (8
    )Net loss
    
    $
    (8,940
    )
    
    $
    (3,004
    )
    
    $
    (11,944
    )Preferred stock dividend
    
    
    (259
    )
    
    
    
    
    
    
    (259
    )Loss applicable to common shareholders
    
    $
    (9,199
    )
    
    $
    (3,004
    )
    
    $
    (12,203
    )Per share information:Basic and diluted loss per share
applicable to common shareholders
    
    $
    (1.02
    )
    
    $
    (0.33
    )
    
    $
    (1.35
    )Basic and diluted weighted average
number of common shares
    
    
    9,030,000
    
    
    
    9,030,000
    
    
    
    9,030,000
 25




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued  Restated Balance Sheets amounts:
  (in thousands, except share and per share information)
 As OriginallyReported adjustedforPreferred Stock
    
    
    Claim Receivable
    
    
    AsReclass
    
    
    Impairment
    
    
    RestatedAssetsCurrent assets:Cash
    
    $
    4,002
    
    
    $
    
    
    
    $
    4,002Restricted cash
    
    
    19
    
    
    
    
    
    
    
    19Accounts receivable, net of allowance
for bad debts of $376 and $3,380
    
    
    8,381
    
    
    
    (3,004
    )
    
    
    5,377Costs and estimated earnings in excess
of billings on uncompleted long-term
contracts
    
    
    4,679
    
    
    
    
    
    
    
    4,679Inventories
    
    
    12,782
    
    
    
    
    
    
    
    12,782Prepaid expenses and other current assets
    
    
    428
    
    
    
    
    
    
    
    428Total current assets
    
    
    30,291
    
    
    
    (3,004
    )
    
    
    27,287Property, plant and equipment, at cost, net of
accumulated depreciation of $12,643
    
    
    4,099
    
    
    
    
    
    
    
    4,099Software development costs, net of accumulated
amortization of $10,773
    
    
    2,008
    
    
    
    
    
    
    
    2,008Goodwill
    
    
    455
    
    
    
    
    
    
    
    455Other assets
    
    
    29
    
    
    
    
    
    
    
    29Total assets
    
    $
    36,882
    
    
    $
    (3,004
    )
    
    $
    33,878Liabilities and Stockholders EquityLiabilitiesCurrent liabilities:Notes payable
    
    
    3,000
    
    
    
    
    
    
    
    3,000Accounts payable  trade
    
    
    1,818
    
    
    
    
    
    
    
    1,818Billings in excess of costs and
estimated earnings on uncompleted
long-term contracts
    
    
    2,035
    
    
    
    
    
    
    
    2,035Customer deposits
    
    
    1,401
    
    
    
    
    
    
    
    1,401Accrued liabilities
    
    
    2,134
    
    
    
    
    
    
    
    2,134Total current liabilities
    
    
    10,388
    
    
    
    
    
    
    
    10,388Long-term obligations:Subordinated convertible debt
    
    
    8,709
    
    
    
    
    
    
    
    8,709Total liabilities
    
    
    19,097
    
    
    
    
    
    
    
    19,097Commitments and contingenciesMinority interest
    
    
    77
    
    
    
    
    
    
    
    77Cumulative convertible participating preferred
stock, Series B, $.05 par value, 15,000 shares
authorized; 6,000 shares issued and
outstanding
    
    
    6,000
    
    
    
    
    
    
    
    6,000Stockholders EquityCommon stock; $.05 par value; 20,000,000
shares authorized; 9,026,958 issued and
outstanding
    
    
    451
    
    
    
    
    
    
    
    451Additional paid-in capital
    
    
    16,455
    
    
    
    
    
    
    
    16,455Accumulated other comprehensive loss
    
    
    (179
    )
    
    
    
    
    
    
    (179
    )Accumulated deficit
    
    
    (5,019
    )
    
    
    (3,004
    )
    
    
    (8,023
    )Total stockholders equity
    
    
    11,708
    
    
    
    (3,004
    )
    
    
    8,704Total liabilities and stockholders equity
    
    $
    36,882
    
    
    $
    (3,004
    )
    
    $
    33,878
 26




---



##### 



Environmental Tectonics Corporation
Notes to the Condensed Consolidated Financial Statements, continued
  (in thousands, except share and per share information)
 As OriginallyReported adjustedforPreferred Stock
    
    
    Claim Receivable
    
    
    AsReclass
    
    
    Impairment
    
    
    RestatedAssetsCurrent assets:Cash
    
    $
    2,215
    
    
    $
    
    
    
    $
    2,215Restricted cash
    
    
    20
    
    
    
    
    
    
    
    20Accounts receivable, net of allowance
for bad debts of $368 and $3,372
    
    
    5,098
    
    
    
    (3,004
    )
    
    
    2,094Costs and estimated earnings in excess
of billings on uncompleted long-term
contracts
    
    
    2,816
    
    
    
    
    
    
    
    2,816Inventories
    
    
    4,739
    
    
    
    
    
    
    
    4,739Deferred tax asset
    
    
    71
    
    
    
    
    
    
    
    71Prepaid expenses and other current assets
    
    
    213
    
    
    
    
    
    
    
    213Total current assets
    
    
    15,172
    
    
    
    (3,004
    )
    
    
    12,168Property, plant and equipment, at cost, net of
accumulated depreciation of $12,760
    
    
    4,054
    
    
    
    
    
    
    
    4,054Construction in progress
    
    
    8,460
    
    
    
    
    
    
    
    8,460Software development costs, net of accumulated
amortization of $10,949
    
    
    2,158
    
    
    
    
    
    
    
    2,158Goodwill
    
    
    455
    
    
    
    
    
    
    
    455Other assets
    
    
    30
    
    
    
    
    
    
    
    30Total assets
    
    $
    30,329
    
    
    $
    (3,004
    )
    
    $
    27,325Liabilities and Stockholders EquityLiabilitiesCurrent liabilities:Accounts payable  trade
    
    
    2,254
    
    
    
    
    
    
    
    2,254Billings in excess of costs and
estimated earnings on uncompleted
long-term contracts
    
    
    1,400
    
    
    
    
    
    
    
    1,400Customer deposits
    
    
    794
    
    
    
    
    
    
    
    794Accrued liabilities
    
    
    2,207
    
    
    
    
    
    
    
    2,207Total current liabilities
    
    
    6,655
    
    
    
    
    
    
    
    6,655Long-term obligations:Subordinated convertible debt
    
    
    8,830
    
    
    
    
    
    
    
    8,830Total liabilities
    
    
    15,485
    
    
    
    
    
    
    
    15,485Commitments and contingenciesMinority interest
    
    
    53
    
    
    
    
    
    
    
    53Cumulative convertible participating preferred
stock, Series B, $.05 par value, 15,000 shares
authorized; 6,000 shares issued and
outstanding
    
    
    6,000
    
    
    
    
    
    
    
    6,000Stockholders EquityCommon stock; $.05 par value; 20,000,000
shares authorized; 9,028,459 issued and
outstanding
    
    
    451
    
    
    
    
    
    
    
    451Additional paid-in capital
    
    
    16,662
    
    
    
    
    
    
    
    16,662Accumulated other comprehensive loss
    
    
    (149
    )
    
    
    
    
    
    
    (149
    )Accumulated deficit
    
    
    (8,173
    )
    
    
    (3,004
    )
    
    
    (11,177
    )Total stockholders equity
    
    
    8,791
    
    
    
    (3,004
    )
    
    
    5,787Total liabilities and stockholders equity
    
    $
    30,329
    
    
    $
    (3,004
    )
    
    $
    27,325
 27




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 2. Nature of Business and Liquidity Matters:
  Training Services Group
 Control Systems Group
      3.
    
    Summary of Significant Accounting Policies:
 Principles of Consolidation:
  Use of Estimates:
  28




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 Revenue Recognition:
     Cash:
  Restricted Cash:
  Inventories:
  Depreciation of Property, Plant and Equipment:
  29




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 Goodwill:
  Capitalized Software Development Costs:
  Research and Development:
  Income Taxes:
  Long-Lived Assets:
   Share-Based Compensation:
   30




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  Advertising Costs:
  Earnings Per Common Share:
  Recent Accounting Pronouncements
    31




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 4.
    
    Accounts Receivable:
  (in thousands)February 29, 2008
    
    February 23, 2007U.S. government receivables billed and unbilled
contract costs subject to negotiation
    
    $
    315
    
    
    $
    3,135U.S. commercial receivables billed
    
    
    2,573
    
    
    
    1,525International receivables billed
    
    
    1,089
    
    
    
    8063,977
    
    
    
    5,466Less allowance for doubtful accounts
    
    
    (746
    )
    
    
    (3,372
    )$
    3,231
    
    
    $
    2,094
  32




---



##### 



Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
 5. Costs and Estimated Earnings on Uncompleted Contracts:
   (in thousands):February 29, 2008
    
    February 23, 2007Cost incurred on uncompleted long-term contracts
    
    $
    44,451
    
    
    $
    40,395Estimated earnings
    
    
    12,071
    
    
    
    14,95356,522
    
    
    
    55,348Less billings to date
    
    
    (59,591
    )
    
    
    (53,932
    )$
    (3,069
    )
    
    $
    1,416
  February 29, 2008
    
    February 23, 2007Costs and estimated earnings in excess of billings
on uncompleted long-term contracts
    
    $
    3,422
    
    
    $
    2,816Billings in excess of costs and estimated
earnings on uncompleted long-term contracts
    
    
    (6,491
    )
    
    
    (1,400
    )$
    (3,069
    )
    
    $
    1,416
  6. Inventories:
  (in thousands)February 29, 2008
    
    
    February 23, 2007Raw material
    
    $
    90
    
    
    $
    95Work in process
    
    
    5,916
    
    
    
    3,820Finished goods
    
    
    767
    
    
    
    824Total inventory
    
    $
    6,773
    
    
    $
    4,739
  33




---



##### 



Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
 7. Property, Plant and Equipment:
  February 29, 2008
    
    
    February 23, 2007(in thousands)Land
    
    $
    100
    
    
    $
    100Buildings and building additions
    
    
    3,851
    
    
    
    3,763Machinery and equipment
    
    
    21,034
    
    
    
    10,024Office furniture and equipment
    
    
    1,194
    
    
    
    1,379Building improvements
    
    
    2,466
    
    
    
    1,54828,645
    
    
    
    16,814Less accumulated depreciation
    
    
    (13,437
    )
    
    
    (12,760
    )Property, plant and equipment, net
    
    $
    15,208
    
    
    $
    4,054
  8. Long-Term Obligations and Credit Arrangements:
       34




---



##### 



Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
      (in thousands)February 29, 2008
    
    February 23, 2007Note payable to bank
    
    $
    8,810
    
    
    $
    Automobile loan
    
    
    25
    
    
    
    Subordinated convertible debt,
net of unamortized discount of
$634 and $1,170 at February 29,
2008 and February 23, 2007,
respectively
    
    
    9,366
    
    
    
    8,830$
    18,201
    
    
    $
    8,830
  2009
    
    $
    92010
    
    
    18,1852011
    
    
    72012 and thereafter
    
    
    Total future obligations
    
    $
    18,201
    35




---



##### 



Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
              36




---



##### 



Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
       (in thousands)Face Value
    
    $
    10,000Less value of conversion feature
    
    
    (1,400
    )Less value of warrants
    
    
    (1,209
    )7,391Accretion 2008
    
    
    536Accretion 2007
    
    
    454Accretion prior years
    
    
    985Carrying value at February 29, 2008
    
    $
    9,366
  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
    
    $
    18,201
    
    
    $
    9
    
    
    $
    18,192
    
    
    $
    
    
    
    $
    Operating leases
    
    
    487
    
    
    
    131
    
    
    
    356
    
    
    
    
    
    
    
    Total
    
    $
    18,688
    
    
    $
    140
    
    
    $
    18,548
    
    
    $
    
    
    
    $
    
  37




---



##### 



Environmental Tectonics Corporation  Notes to the Consolidated Financial Statements, continued
 9. Leases:
   10. Income Taxes:
  (in thousands)52 Weeks Ended
    
    
    52 Weeks EndedFebruary 29, 2008
    
    
    February 23, 2007$
    
    
    $Currently (receivable) payableFederal
    
    
    
    
    
    
    State
    
    
    
    
    
    
    Foreign (benefits) taxes
    
    
    37
    
    
    
    (6
    )37
    
    
    
    (6
    )Deferred:Federal
    
    
    
    
    
    
    State
    
    
    
    
    
    
    Foreign benefit
    
    
    
    
    
    
    (71
    )$
    37
    
    
    $
    (77
    )
  52 Weeks Ended
    
    52 Weeks EndedFebruary 29, 2008
    
    February 23, 2007Statutory income tax
    
    
    (34.0
    )%
    
    
    (34.0
    )%State income tax, net of federal tax benefit
    
    
    (3.7
    )
    
    
    (0.0
    )Research and experimentation and other
tax credits
    
    
    (1.0
    )
    
    
    (1.6
    )Benefit of foreign and foreign-source
income or loss
    
    
    (1.2
    )
    
    
    (0.9
    )Change in valuation allowance
    
    
    43.2
    
    
    
    35.1Other, net
    
    
    (3.6
    )
    
    
    0.5(0.3
    )%
    
    
    (0.9
    )%
 38




---



##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  (in thousands)2008
    
    
    2007Deferred tax assets:Vacation reserve
    
    $
    69
    
    
    $
    66Inventory reserve
    
    
    464
    
    
    
    317Receivable reserve
    
    
    278
    
    
    
    137Warranty reserve
    
    
    63
    
    
    
    63Compensation and other reserves
    
    
    58
    
    
    
    40Stock options
    
    
    97
    
    
    
    96ETC  PZL deferred tax asset
    
    
    43
    
    
    
    82Net operating loss and credits
    
    
    13,669
    
    
    
    8,536Other, net
    
    
    75
    
    
    
    7414,816
    
    
    
    9,411Valuation Reserve
    
    
    (13,558
    )
    
    
    (8,149
    )Total current deferred tax asset
    
    $
    1,258
    
    
    $
    1,262Deferred tax liabilities:Amortization of capitalized software
    
    $
    727
    
    
    $
    886Depreciation
    
    
    488
    
    
    
    305Total non-current deferred tax liability
    
    $
    1,215
    
    
    $
    1,191Net deferred tax asset
    
    $
    43
    
    
    $
    71
 39




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##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
  11. Business Segment Information:
   (amounts in thousands)Training Services
    
    Control SystemsTSG
    
    CSG
    
    TotalFiscal 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
    
    
    
    3,694Fiscal 2007 (restated)Net sales
    
    $
    9,293
    
    
    $
    8,126
    
    
    $
    17,419Interest expense
    
    
    852
    
    
    
    299
    
    
    
    1,151Depreciation and amortization
    
    
    973
    
    
    
    884
    
    
    
    1,857Operating loss
    
    
    (3,991
    )
    
    
    (5,728
    )
    
    
    (9,719
    )Income tax benefit
    
    
    (77
    )
    
    
    
    
    
    
    (77
    )Goodwill
    
    
    455
    
    
    
    
    
    
    
    455Identifiable assets
    
    
    7,698
    
    
    
    4,109
    
    
    
    11,807Expenditures for segment assets
    
    
    160
    
    
    
    148
    
    
    
    308
 2008
    
    
    2007 (restated)Reconciliation to consolidated amounts:Segment assets
    
    $
    15,038
    
    
    $
    11,807Corporate assets
    
    
    22,587
    
    
    
    15,518Total assets
    
    $
    37,625
    
    
    $
    27,325Segment operating (loss)/income
    
    $
    (9,480
    )
    
    $
    (9,719
    )Less interest expense
    
    
    (1,582
    )
    
    
    (1,151
    )Income tax (provision) benefit
    
    
    (37
    )
    
    
    77Total loss for segments
    
    
    (11,099
    )
    
    
    (10,793
    )Corporate home office expense
    
    
    (2,085
    )
    
    
    (1,217
    )Impairment charge
    
    
    (455
    )
    
    
    Other expenses
    
    
    (259
    )
    
    
    58Minority interest
    
    
    3
    
    
    
    8Net loss
    
    $
    (13,895
    )
    
    $
    (11,944
    )
  40




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##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
    12. Stock Options:
  February 29, 2008
    
    February 23, 2007Weighted average
    
    
    
    
    
    Weighted averageShares
    
    Exercise price
    
    Shares
    
    exercise priceOutstanding at beginning of year
    
    
    371,928
    
    
    $
    6.70
    
    
    
    247,939
    
    
    $
    7.31Granted
    
    
    
    
    
    
    
    
    
    
    124,639
    
    
    
    5.46Exercised
    
    
    
    
    
    
    
    
    
    
    (650
    )
    
    
    3.31Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at end of year
    
    
    371,928
    
    
    
    6.70
    
    
    
    371,928
    
    
    
    6.70Options exercisable at year end
    
    
    332,816
    
    
    
    
    
    
    
    310,496Weighted average fair value of
options granted during the year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    6.76
  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
    
    
    
    218,316
    
    
    $
    7.56Total
    
    
    371,928
    
    
    
    
    
    
    
    
    
    
    
    332,816
    41




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##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
      13. Other Related Party Transactions
    42




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##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 14. Commitments and Contingencies
 Claims and Litigation:
 U.S. Navy
   Walt Disney World Co.
  Other Matters
  43




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##### 



Environmental Tectonics Corporation
Notes to the Consolidated Financial Statements, continued
 15. Employee Benefit Plan:
   16. Quarterly Consolidated Financial Information (Unaudited):
  Quarter ended:May 25,
    
    August 24,
    
    November 23,
    
    February 29,Fiscal Year 2008
    
    2007
    
    2007
    
    2007
    
    2008Net sales
    
    $
    4,347
    
    
    $
    4,247
    
    
    $
    6,701
    
    
    $
    7,435Gross profit (loss)
    
    
    895
    
    
    
    543
    
    
    
    1,222
    
    
    
    1,586Operating loss
    
    
    (5,347
    )
    
    
    (2,579
    )
    
    
    (1,627
    )
    
    
    (2,490
    )Loss before income taxes
    
    
    (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
    )
 Quarter ended:May 26,
    
    August 25,
    
    November 24,
    
    February 23,Fiscal Year 2007
    
    2006
    
    2006
    
    2006
    
    2007(restated)*Net sales
    
    $
    4,575
    
    
    $
    4,329
    
    
    $
    4,718
    
    
    $
    3,797Gross profit (loss)
    
    
    1,014
    
    
    
    494
    
    
    
    1,030
    
    
    
    (467
    )Operating loss
    
    
    (1,701
    )
    
    
    (1,913
    )
    
    
    (4,585
    )
    
    
    (2,737
    )Loss before income taxes
    
    
    (2,033
    )
    
    
    (2,154
    )
    
    
    (4,833
    )
    
    
    (3,009
    )Minority interest
    
    
    (3
    )
    
    
    (16
    )
    
    
    33
    
    
    
    (23
    )Net loss
    
    
    (2,030
    )
    
    
    (2,148
    )
    
    
    (4,870
    )
    
    
    (2,896
    )Loss per common share:Basic
    
    
    ($0.23
    )
    
    
    ($0.24
    )
    
    
    ($0.55
    )
    
    
    ($0.33
    )Diluted
    
    
    ($0.23
    )
    
    
    ($0.24
    )
    
    
    ($0.55
    )
    
    
    ($0.33
    )
 
 *
    
    restated for reserve of claim receivable. See Note 1  Subsequent Events in the
accompanying notes. 44




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##### 



ENVIRONMENTAL TECTONICS CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(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 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
    
    
    
    
    
    
    
    12,162Fiscal
year ended February 23, 2007 (restated)*Valuation and qualifying accounts related to:Accounts receivable
    
    $
    965
    
    
    $
    3,022
    
    
    $
    615
    
    
    $
    3,372Inventory
    
    
    1,032
    
    
    
    446
    
    
    
    487
    
    
    
    991Property, plant and equipment
    
    
    12,134
    
    
    
    626
    
    
    
    
    
    
    
    12,760Software development costs
    
    
    9,718
    
    
    
    1,231
    
    
    
    
    
    
    
    10,949
 
 *
    
    restated for reserve of claim receivable. See Note 1  Subsequent Events in the accompanying
notes. 45