##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-K
 ANNUAL REPORT
PURSUANT TO SECTIONS 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 for the fiscal year ended February 26, 2010
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission File Number 1-10655
 ENVIRONMENTAL TECTONICS CORPORATION
 Pennsylvania
    
    23-1714256(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 (Address of principal executive offices, Zip Code)
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, par value $.05 per share
   o þ
  o þ
 þ o
 o
 o o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-accelerated Filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ
   
 (1)
    
    Index to Exhibits appears after page 36 of this Report.The information provided is not an admission that any person whose holdings are excluded from
the figure is not an affiliate or that any person whose holdings are included is an affiliate and
any such admission is hereby disclaimed. The information provided is solely for record keeping
purposes of the Securities and Exchange Commission.




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##### 



ENVIRONMENTAL TECTONICS CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED
FEBRUARY 26, 2010
 TABLE OF CONTENTS
 PART I
    
    
    1Item 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    7Item 1B. Unresolved Staff Comments
    
    
    12Item 2. Properties
    
    
    12Item 3. Legal Proceedings
    
    
    13PART II
    
    
    14Item 4.
Market for the Registrants Common Stock and Related Security
Holder Matters and Issurer Purchases of Equity Securities
    
    
    14Item 5. Selected Financial Data
    
    
    14Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 7. Financial Statements and Supplementary Data
    
    
    14Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    14Item 8T. Controls and Procedures
    
    
    15PART III
    
    
    16Item 9. Directors and Executive Officers of the Registrant
    
    
    16Item 10. Executive Compensation
    
    
    20Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    25Item 12. Certain Relationships and Related Transactions and Director Independence
    
    
    26Item 13. Principal Accounting Fees and Services
    
    
    32PART IV
    
    
    33Item 14. Exhibits and Financial Statement Schedules.
    
    
    33SIGNATURES
    
    
    36EXHIBIT INDEX
    
    
    37EXHIBIT 13
    
    
    1Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    2Report of Independent Registered Public Accounting Firm
    
    
    13Consolidated Balance Sheets
    
    
    14Consolidated Statements of Operations
    
    
    15Consolidated Statements of Changes in Stockholders Equity (Deficiency)
    
    
    16Consolidated Statements of Cash Flows
    
    
    17Notes to the Consolidated Financial Statements
    
    
    18EX-13EX-21EX-23EX-31.1EX-31.2EX-32
   (i)




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FORWARD-LOOKING STATEMENTS
     
 PART I
 
 Item 1. Business
   Marketing
  1




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Product Development
  Tactical Flight Combat and G-force / Disorientation Trainers
  Upset Recovery Training
     Advanced Disaster Management Simulator (ADMS)
    2




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Sterilizer Division
   Hyperbaric Division
  Subsidiaries
  Suppliers
   Intellectual Property
  3




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Customers
   .
 Foreign and Domestic Operations and Export Sales
  Fiscal year ended
    
    
    Fiscal year endedFebruary 26, 2010
    
    
    February 27, 2009Geographic area:
    
    Sales
    
    
    %
    
    
    Sales
    
    
    %Domestic
    
    $
    12,870
    
    
    
    30.5
    %
    
    $
    14,442
    
    
    
    39.4
    %US Government
    
    
    7,711
    
    
    
    18.2
    %
    
    
    3,096
    
    
    
    8.4
    %International
    
    
    21,690
    
    
    
    51.3
    %
    
    
    19,149
    
    
    
    52.2
    %Total
    
    $
    42,271
    
    
    
    100.0
    %
    
    $
    36,687
    
    
    
    100.0
    %
       4




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Product Warranties and Service
  Manufacturing Facilities
  Green Initiative
  -
    
    Our ATFS-400 regenerative braking technology recovers 80% of the energy used to power the centrifuge.-
    
    We are currently replacing all the CRT computer monitors (90 watts) with more energy efficient LCD monitors (45 watts).-
    
    We are undergoing a full energy audit in an effort to reduce consumption.-
    
    We are investigating switching to LED lighting and the feasibility of a Solar Farm on our roof.Operationally, we continue to emphasize the following:-
    
    Expand our recycling effort so as to reduce waste sent to landfills.-
    
    Use our printers less and email more. When printing we strive to use recycled or
FSC certified paper. (Products carrying the FSC label are independently certified to assure
consumers that they come from forests that are managed to meet the social, economic and
ecological needs of present and future generations.) Also, we have added the following
disclaimer to the bottom of our emails: Please consider the environment before printing
this email.
 Sales Backlog
  Business segment:Geographic area:
    
    TSG
    
    
    CSG
    
    
    Total
    
    
    %Domestic
    
    $
    210
    
    
    $
    3,772
    
    
    $
    3,982
    
    
    
    4.1
    %US Government
    
    
    49,111
    
    
    
    48
    
    
    
    49,159
    
    
    
    51.0International
    
    
    36,244
    
    
    
    7,579
    
    
    
    43,823
    
    
    
    44.9Total
    
    $
    85,565
    
    
    $
    11,399
    
    
    $
    96,964
    
    
    
    100.0
    %% of total
    
    
    88.2
    %
    
    
    11.8
    %
    
    
    100.0
    %
    5




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Competition
     Compliance with Environmental Laws
   Compliance with Export Controls
  Employees
  Available Information
   6




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Item 1A. Risk Factors
 RISKS PARTICULAR TO OUR BUSINESS
 Our business is subject to numerous risks and uncertainties which could cause our actual operating
results and developments to be materially different from those expressed or implied in any of our
public announcements or filings including this Annual Report on Form 10-K for the year ended
February 26, 2010. These risks and uncertainties include the following items, which do not
represent a comprehensive list of all the risks and uncertainties associated with our business.
 Our common stock is currently quoted on the Over the Counter  Bulletin Board which may limit
purchase and sale of our common stock.
   
    
    actual or anticipated operating results;
    
    market conditions in the industries in which we compete;
    
    announcements by competitors;
    
    results of litigation;
    
    regulatory actions; and
    
    general economic conditions.
  During the current fiscal year, our core business, aircrew training simulators, was awarded three
large multi-year contracts, two with the U.S. Department of Defense and one with a major
international defense agency. Purchases such as these are infrequent and inconsistent. The U.S.
Defense contracts were awarded under funds appropriated under the Base Realignment and Closure Act
(BRAC). This Act had a specific focus and purpose and funds allocation. Although possible, it
should not be assumed that additional awards will be obtained under this Act nor that additional
funding under this Act will be available. If we are unsuccessful in obtaining additional contracts
under BRAC funding our financial performance could be significantly negatively impacted.
 $
 There is a risk of an unfavorable outcome in litigation and resulting negative financial impact on
our operating results.
  7




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Our sources of revenues are not consistent; they tend to be concentrated within a few contracts
with a few customers and in a particular mix. It cannot be assumed that any of these contracts,
customers or mix will recur in future years.
   Our debt is concentrated and directly dependent upon either direct arrangements or under guarantee
arrangements with H. F. Lenfest.
     We need to attain validation from the U.S. defense agencies of our Authentic Tactical Fighting
Systems technology.
  Our operations involve rapidly evolving products and technological change.
  8




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Long term contracts under percentage of completion (POC) accounting comprise a significant
portion of our fiscal 2010 revenues and our backlog at February 26, 2010. Delays in the delivery of
our products may prevent us from invoicing our costs and estimated earnings on uncompleted
contracts.
   In the event we suffer production delays, we may be required to pay certain customers substantial
liquidated damages and other penalties.
  Our fixed-price and cost-reimbursement contracts may commit us to unfavorable terms.
     9




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As a U.S. Government contractor, we are subject to a number of procurement rules and regulations.
   Our business could be adversely affected by a negative audit by the U.S. Government.
  Our contracts that are funded by the U.S. Government or foreign governments are subject to a
competitive bidding process that may affect our ability to win contract awards or renewals in the
future.
  Our international business is subject to geo-political and economic factors, regulatory
requirements and other risks.
   10




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Legislative actions resulting in higher compliance costs are likely to adversely affect our future
consolidated results of operations, financial position and cash flows.
  Changes in healthcare policy could increase our costs and impact sales of and reimbursement for our
tests.
  The Company is subject to environmental laws and potential exposure to environmental liabilities.
  Our quarterly operating results may vary significantly from quarter to quarter.
  
    
    the number, size and scope of our projects;
    
    the mix of contracts (POC versus other);
    
    equipment purchases and other expenditures required for our business;
    
    our ability to finance our operations;
    
    the number of bid and proposal efforts undertaken;
    
    delays in sales bookings or production;
    
    the level of employee productivity;
    
    the adequacy of our provisions for receivable, inventory and other losses;
    
    the accuracy of our estimate of resources required to complete ongoing projects; and
    
    general economic conditions.
  11




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Our officers and directors own a significant amount of our common stock which permits them to exert
significant influence over the direction of our business and affairs.
  We depend on the recruitment and retention of qualified personnel, and our failure to attract and
retain such personnel could seriously harm our business.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
    
    
    ATFS-400 Authentic Tactical Flight Simulator
    
    GYROLAB GL-2000 Advanced Spatial Disorientation Trainer
    
    Hypobaric Chamber
    
    Ejection Seat Trainer
    
    Night Vision and Night Vision Goggle Training System
 12




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Item 3. Legal Proceedings
 Mends International, Ltd.
  Administrative Agreement with U.S. Navy
  Other Matters
  13




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PART II
 
 Item 4.
Market for the Registrants Common Stock and Related Security
Holder Matters and Issurer Purchases of Equity Securities
  Sale PricesHigh
    
    
    LowFiscal 2010First Quarter
    
    $
    2.84
    
    
    $
    0.73Second Quarter
    
    
    1.68
    
    
    
    1.05Third Quarter
    
    
    2.69
    
    
    
    1.20Fourth Quarter
    
    
    3.55
    
    
    
    2.26Fiscal 2009First Quarter
    
    $
    2.95
    
    
    $
    1.54Second Quarter
    
    
    2.82
    
    
    
    1.35Third Quarter
    
    
    2.30
    
    
    
    1.10Fourth Quarter
    
    
    1.92
    
    
    
    0.55
  Refinancing Transaction
 Lenfest Financing Transaction
   
 Item 5. Selected Financial Data
  
 Item 6. Managements Discussion and Analysis of Financial Condition and Results of Operations
  
 Item 7. Financial Statements and Supplementary Data
  
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  14




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Item 8T. Controls and Procedures
      15




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PART III
 
 Item 9. Directors and Executive Officers of the Registrant
  Served as DirectorName
    
    Age
    
    or Officer Since (1)
    
    Positions and OfficesWilliam F. Mitchell (2)
    
    
    68
    
    
    
    1969
    
    
    Chairman of the Board, Chief Executive
Officer, President and DirectorGeorge K. Anderson, M.D. (3)
    
    
    64
    
    
    
    2003
    
    
    DirectorH.F. Lenfest (4)
    
    
    80
    
    
    
    2003
    
    
    DirectorStephen F. Ryan (5)
    
    
    74
    
    
    
    2009
    
    
    DirectorGeorge A. Sawyer (6)
    
    
    78
    
    
    
    2009
    
    
    DirectorDuane D. Deaner (7)
    
    
    62
    
    
    
    1996
    
    
    Chief Financial OfficerJames D. Cashel (8)
    
    
    47
    
    
    
    2009
    
    
    General Counsel and Corporate Secretary
 
 (1)
    
    Directors are elected for one-year terms.(2)
    
    Mr. Mitchell has been our Chairman of the Board, President and Chief Executive Officer since
1969, except for the period from January 24, 1986 through January 24, 1987, when he was
engaged principally in soliciting sales for our products in the overseas markets. Mr. Mitchell
received a Bachelor of Science degree in physics from Drexel University and has completed
graduate work in mechanical and electrical engineering. He is a member of the ASME and Drexel
University engineering advisory boards. Additionally, he is a member of the Society of
Automotive/Aerospace Engineering, the International Society of Pharmaceutical Engineering, the
Undersea and Hyperbaric Medical Society, the Aerospace Medical Association, the American
Society of Mechanical Engineering and the Institute of Environmental Sciences.(3)
    
    Dr. Anderson is an experienced physician executive. He served in the Air Force as a flight
surgeon, aerospace medicine staff officer, and commander of several medical organizations in
Korea, Germany, and United States. He retired from active duty in the grade of Major General.
Following his thirty years of military service, he transitioned to executive positions in the
private sector. He served as Chief Executive Officer of the Koop Foundation from 1997 to 1998
and as Chief Executive Officer at Oceania, Inc., a medical software company, from 1999 to
2001. A period of practice as an independent medical technology consultant was followed by his
current role as Executive Director of the Association of Military Surgeons of the United
States (AMSUS). AMSUS, the nonprofit Society of the Federal Health agencies, operates from a
headquarters located in Bethesda, Maryland.(4)
    
    Mr. Lenfest practiced law with Davis Polk & Wardwell before joining Triangle Publications,
Inc., in Philadelphia as Associate Counsel in 1965. In 1970, Mr.
Lenfest was placed in charge of Triangles Communications Division, serving as Editorial
Director and Publisher of Seventeen Magazine and President of the CATV Operations. In 1974,
Mr. Lenfest, with the support of two investors, formed Lenfest Communications, Inc., which
purchased Suburban Cable TV Company and Lebanon Valley Cable TV Company from Triangle with a
total of 7,600 subscribers. In January 2000, Mr. Lenfest sold his cable television operations,
which by then served 1.2 million subscribers, to Comcast Corporation. Mr. Lenfest is the owner
of various other businesses and is active in many philanthropic activities including as
Chairman of the Board of the Philadelphia Museum of Art, the Curtis Institute, and the Lenfest
Foundation. Since 1989, Mr. Lenfest has served on the Board of Directors for TelVue
Corporation, a broadcast technology company. Mr. Lenfest is a graduate of Washington and Lee
University and Columbia Law School.(5)
    
    Mr. Ryan retired in 2001 as the Chairman, President, CEO and a Director from Selas
Corporation of America (now known as IntriCon Corporation). Selas was a diversified
international firm engaged in the design, development, engineering and manufacturing of
industrial products, such as the furnace section of continuous annealing and galvanizing lines
in steel production for automotive steel, glass production furnace lines, cable winch devices
for below the chassis spare tire lift holders for the automotive industry, parts for hearing
aid devices and transistors for electric surge guards for computers and electronics. Mr. Ryan
also currently serves as a Director of Bolt Technology Corporation, a public company which is
traded 16




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on NASDAQ. Bolt is a manufacturer and seller of seismic air guns, cables, hydrophones and
other devices engaged in the offshore oil and gas exploration market. Mr. Ryan received a
Bachelor of Business Administration degree from Iona College and MBA degree from the
University of Connecticut. He is a member of the New York State Society of Certified Public
Accountants (NYSSCPA) and the American Institute of CPAs (AICPA).(6)
    
    Mr. Sawyer is a founding partner of J.F. Lehman & Company and currently serves as Executive
Advisor. From 1993 to 1995, he served as President and Chief Executive Officer of Sperry
Marine, Inc. Prior thereto, Mr. Sawyer held a number of prominent positions in private
industry and in the United States government, including serving as President of John J.
McMullen Associates, President and Chief Operating Officer of TRE Corporation, Executive Vice
President and Director of General Dynamics Corporation, Vice President of International
Operations for Bechtel Corporation and Assistant Secretary of the Navy for Shipbuilding and
Logistics. He graduated Phi Beta Kappa from Yale University and completed graduate studies in
nuclear engineering at the Knolls Atomic Power Laboratories. He is also the co-inventor of
the Consolidated Nuclear Steam Generator II and served in the US Navy for ten years as a
nuclear submariner. Mr. Sawyer currently serves as a Director of Atlantic Marine Holding
Company, Black Light Power Inc. and CHI Systems, Inc.(7)
    
    Mr. Deaner has served as our Chief Financial Officer since January 1996. Mr. Deaner served as
Vice President of Finance for Pennfield Precision Incorporated from September 1988 to December
1995. Mr. Deaner received a Masters of Business Administration degree from Temple University
and a Bachelors of Arts degree in Mathematics from Millersville University in Pennsylvania.(8)
    
    Mr. Cashel was appointed General Counsel and Corporate Secretary in July 2009. From December
2008 to July 2009, Mr. Cashel was General Counsel at ETC. From 1996 through 2008, Mr. Cashel
was in private law practice. From May 1998 through December 2008, Mr. Cashel practiced law at
Montgomery, McCracken, Walker and Rhoads, LLP, having served as a partner from 2003 through
2008. Mr. Cashel, who is also a registered patent attorney, received a Bachelor of Science
degree in Chemical Engineering from Drexel University in 1987, and from 1987 through 1994 he
was employed in various engineering positions. Mr. Cashel currently serves on the Board of
Directors for the Delaware Valley Association of Corporate Counsel and a Drexel University
College of Engineering advisory board. Board of Directors
     17




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Committees of the Board of Directors
   Nominating andName of Director
    
    Independent
    
    Audit
    
    Compensation
    
    GovernanceStephen F. Ryan
    
    Yes
    
    Chair
    
    X
    
    XDr. George K. Anderson
    
    Yes
    
    X
    
    X
    
    ChairGeorge A. Sawyer
    
    Yes
    
    X
    
    Chair
    
    XNumber of Meetings
Held in Fiscal Year
    
    
    
    7
    
    1
    
    1
 Director Independence
    
    
    Establish CEO and executive officers compensation
    
    Develop the compensation philosophy which shall include the strict
adherence to the companys Code of Ethics and Code of Conduct
    
    Assist with the preparation of and review the Compensation
Discussion and Analysis (CD&A)
    
    Oversee equity compensation grant policy
    
    Retain and terminate outside experts if needed
    
    Evaluate related shareholder proposals
  18




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Code of Ethics
 www.etcusa.com.
  Administrative Agreement
  Compliance With Section 16(a) of the Exchange Act
   Compensation Committee Interlocks and Insider Participation
  19




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Item 10. Executive Compensation
 COMPENSATION DISCUSSION AND ANALYSIS
 Objectives and Philosophy of Executive Compensation
    Compensation Philosophy and Objectives
  Primary Components of Executive Compensation
  Base Salary
   Short-term Incentive Compensation
  20




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Long-Term Incentive Compensation
   Executive Benefits and Perquisites
  Compensation Committee Report
  Employment Agreements with Executive Officers
  Chief Executive Officer Employment Agreement
   21




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SUMMARY COMPENSATION TABLE
  Change inPension ValueandNonqualifiedNon-Equity
    
    DeferredName and Principal
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherPosition
    
    Year
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    Total(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)William F. Mitchell (1)
    
    
    2010
    
    
    $
    243,000
    
    
    
    
    (2)
    
    
    
    
    
    $
    86,000
    (3)
    
    
    
    
    
    
    
    
    
    $
    66,000
    (4)
    
    $
    395,000Chairman of the Board,
    
    
    2009
    
    
    $
    225,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    68,000
    (5)
    
    $
    293,000Chief Executive Officer,
President and DirectorDuane D. Deaner (6)
    
    
    2010
    
    
    $
    115,000
    
    
    $
    22,000
    (7)
    
    
    
    
    
    $
    30,000
    (8)
    
    
    
    
    
    
    
    
    
    $
    2,000
    (9)
    
    $
    169,000Chief Financial Officer
    
    
    2009
    
    
    $
    102,000
    
    
    $
    15,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,000
    (10)
    
    $
    119,000James D. Cashel (11)
    
    
    2010
    
    
    $
    143,000
    
    
    
    
    (12)
    
    
    
    
    
    $
    41,000
    (13)
    
    
    
    
    
    
    
    
    
    $
    3,000
    (14)
    
    $
    187,000General Counsel,
Corporate Secretary
 
 (1)
    
    ETC is party to an employment agreement with Mr. Mitchell, pursuant to which Mr. Mitchell
serves as President and Chief Executive Officer. The terms and conditions of Mr. Mitchells employment agreement are
summarized above under Primary Components of Executive Compensation-Chief Executive Officer Employment Agreement.(2)
    
    Mr. Mitchell received a bonus of $247,500 subsequent to fiscal year end.(3)
    
    On October 26, 2009 Mr. Mitchell was awarded stock options for 33,000 shares of the Companys
common stock pursuant to the
Companys 2009 Employee, Director and Consultant Stock Plan.(4)
    
    Consists of $60,000 paid to Mr. Mitchell in connection with ETCs use of Mr. Mitchells
properties, $2,000 in automobile
allowance payments for Mr. Mitchells company car, and $4,000 in contributions on behalf of
Mr. Mitchell pursuant to ETCs
Retirement Savings Plan.(5)
    
    Consists of $60,000 paid to Mr. Mitchell in connection with ETCs use of Mr. Mitchells
properties, $2,000 in automobile
allowance payments for Mr. Mitchells company car, $3,000 in life insurance premium payments
and $3,000 in contributions on
behalf of Mr. Mitchell pursuant to ETCs Retirement Savings Plan. 22




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(6)
    
    ETC is party to an employment agreement with Mr. Deaner, pursuant to which Mr. Deaner
serves as Chief Financial Officer. The
terms and conditions of Mr. Deaners employment agreement are summarized above under Primary
Components of Executive Compensation-Employment Agreements with Executive Officers.(7)
    
    Subsequent to fiscal year end, Mr. Deaner received an additional $8,000 in bonus payments
related to the Companys performance in fiscal 2010.(8)
    
    On October 26, 2009 Mr. Deaner was awarded stock options for 11,500 shares of the
Companys common stock pursuant to the Companys 2009 Employee, Director and Consultant Stock Plan.(9)
    
    Consists of ETCs contribution on behalf of Mr. Deaners pursuant to ETCs Retirement
Savings Plan.(10)
    
    Consists of ETCs contribution on behalf of Mr. Deaners pursuant to ETCs Retirement Savings
Plan.(11)
    
    ETC is party to an employment agreement with Mr. Cashel, pursuant to which Mr. Cashel serves
as General Counsel and
Corporate Secretary. The terms and conditions of Mr. Cashels employment agreement are
summarized above under Primary
Components of Executive Compensation- Employment Agreements with Executive Officers.(12)
    
    Subsequent to fiscal year end, Mr. Cashel received a bonus payment of $22,500 related to the
Companys performance in fiscal 2010.(13)
    
    On October 26, 2009 Mr.Cashel was awarded stock options for 15,500 shares of the Companys
common stock pursuant to the
Companys 2009 Employee, Director and Consultant Stock Plan.(14)
    
    Consists of ETCs contribution on behalf of Mr.Cashel pursuant to ETCs Retirement Savings
Plan. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
  Number ofSecurities
    
    Number of SecuritiesUnderlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    Option ExerciseOptions
    
    Options
    
    Price
    
    OptionName
    
    (#) Exercisable
    
    (#) Unexercisable
    
    ($)
    
    Expiration Date(a)
    
    (b)
    
    (c)
    
    (e)
    
    (f)William F. Mitchell
    
    
    
    
    
    
    33,000
    
    
    $
    2.64
    
    
    
    12/17/2019Chairman of the Board,
Chief Executive Officer,
President and DirectorDuane D. Deaner
    
    
    2,881
    
    
    
    
    
    
    $
    7.375
    
    
    
    1/03/11Chief Financial Officer
    
    
    6,978
    
    
    
    
    
    
    $
    7.24
    
    
    
    9/15/14642
    
    
    
    
    
    
    $
    6.07
    
    
    
    9/21/1611,500
    
    
    $
    2.64
    
    
    
    12/17/2019James D. Cashel
    
    
    
    
    
    
    15,500
    
    
    $
    2.64
    
    
    
    12/17/2019General Counsel,
Corporate Secretary
 23




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Compensation of Directors
 .
 FISCAL 2010 DIRECTOR COMPENSATION TABLE
  Change inFees
    
    
    
    
    
    
    
    
    
    
    
    
    
    Pension Value andEarned
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Nonqualifiedor Paid
    
    Stock
    
    Option
    
    Incentive Plan
    
    Deferred
    
    All Otherin Cash
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)1
    
    ($)
    
    ($)
    
    Earnings ($)
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)William F. Mitchell 2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    George K. Anderson, M.D. 3
    
    $
    16,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    16,000H. F.
Lenfest 4
    
    $
    5,000
    
    
    
    4,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,000George A.
Sawyer 5
    
    $
    10,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,000Steve
Ryan6
    
    $
    12,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 1
    
    ETC used the closing price of its common
stock on the date of grant as reported on the Over the Counter  Bulletin Board
to compute the value of these awards.2
    
    Mr. Mitchell held options to purchase an
aggregate of 33,000 shares of our common stock as of February 26, 2010.3
    
    Dr. Anderson held options to purchase an
aggregate of 60,000 shares of our common stock as of February 26, 2010.4
    
    Mr. Lenfest did not hold any options to
purchase shares of our common stock as of February 26, 2010.5
    
    Mr. Sawyer held options to purchase an aggregate of 10,000
shares of our common stock as of February 26, 2010.6
    
    Mr. Ryan held options to purchase an
aggregate of 10,000 shares of our common stock as of February 26, 2010. 24




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##### Table of Contents



Item 11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
  Number of shares
    
    
    PercentageWilliam F. Mitchell (2)
    
    
    1,093,624
    (3)
    
    
    12.0
    %c/o Environmental Tectonics Corporation125 James WaySouthampton, PA 18966George K. Anderson, M.D. (4)
    
    
    51,250
    (5)
    
    
    1.0
    %8 Little Harbor WayAnnapolis, MD 21403H.F. Lenfest (4)
    
    
    14,512,176
    (6)
    
    
    68.5
    %c/o The Lenfest GroupFire Tower Bridge-Suite 460300 Barr Harbor DriveWest Conshohocken, PA 19428Stephen F. Ryan (4)
    
    
    6,713
    
    
    
    *c/o Environmental Tectonics Corporation125 James WaySouthampton, PA 18966George A. Sawyer (4)
    
    
    1,713
    
    
    
    *404 North Union StreetAlexandria, VA 22314T. Todd Martin, III
    
    
    999,592
    (7)
    
    
    11.0
    %50 Midtown Park EastMobile, AL 36606Duane D. Deaner (8)
    
    
    10,501
    (9)
    
    
    *c/o Environmental Tectonics Corporation125 James WaySouthampton, PA 18966James D. Cashel (10)
    
    
    
    
    
    
    *c/o Environmental Tectonics Corporation125 James WaySouthampton, PA 18966All Directors and Executive Officers as a group (7 persons)
    
    
    15,675,977
    
    
    
    73.7%
    (11)
 
 *
    
    less than 1%(1)
    
    Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities
Exchange Act of 1934. Unless otherwise noted, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of our common stock
beneficially owned by them. The Percent of Common Stock is based on a denominator for the
applicable Beneficial Owner equal to the sum of: (i) 9,086,999 shares of common stock
outstanding, (ii) the shares of common stock, which may be acquired by such Beneficial Owner
upon the exercise of options owned by such Beneficial Owner, and (iii) the shares of common
stock beneficially owned by Lenfest set forth in footnote 6 below.(2)
    
    Chairman of the Board, President, Chief Executive Officer and Director of the Company. 25




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##### Table of Contents



(3)
    
    Includes 45,200 shares of common stock held by Mr. Mitchells wife.(4)
    
    Director of the Company.(5)
    
    Includes 50,000 shares of common stock which may be acquired upon the exercise of options
that are presently exercisable.(6)
    
    Includes 11,370,500 shares of common stock issuable upon conversion of 22,741 shares of
Series E Preferred Stock, 148,601 shares of common stock issuable upon conversion of 155
shares of Series D Preferred Stock and 594,335 shares of common stock issuable upon conversion
of 700,000 common stock warrants.(7)
    
    Includes 938,692 shares of common stock owned by Advanced Technology Asset Management, LLC, a
limited liability company of which T. Todd Martin, III is manager. Also includes 26,900
shares owned by Allied Williams Co, Inc., a corporation of which Mr. Martin is an officer and
director, 17,000 shares owned by Equity Management, LLC, a limited liability company of which
Mr. Martin is manager, 7,000 shares owned by trusts of which Mr. Martin is trustee, and 10,000
shares owned by Perdido Investors, LLC, of which Mr. Martin is the manager.(8)
    
    Chief Financial Officer of the Company.(9)
    
    Includes 10,501 shares of common stock which may be acquired upon the exercise of options
granted under our Incentive Stock Option Plan that are presently exercisable.(10)
    
    General Counsel and Corporate Secretary of the Company.(11)
    
    Includes 50,000 shares of common stock which may be acquired by members of the Board of
Directors upon the exercise of options that are presently exercisable. Additionally, includes
11,370,500 shares of common stock issuable upon conversion of 22,741 shares of Series E
Preferred Stock, 148,601 shares of common stock issuable upon conversion of 155 shares of
Series D Preferred Stock and 594,335 shares of common stock issuable upon conversion of
700,000 common stock warrants. Also includes 10,501 shares of common stock which may be
acquired by Duane D. Deaner upon the exercise of options granted under our Incentive Stock
Option Plan that are presently exercisable.  
 Item 12. Certain Relationships and Related Transactions and Director Independence
 Background For Discussion Of Transactions Completed in Fiscal 2010
     26




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##### Table of Contents



Transactions Completed in Fiscal 2010
  27




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##### Table of Contents



Lenfest Credit Facility
        28




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##### Table of Contents



Exchange of Existing Instruments for Series E Preferred Stock
  pari passu
     29




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##### Table of Contents



Increased PNC Bank Credit Facility and Issuance of New Guarantee
        Financing Transaction Conditions
  30




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##### Table of Contents



Shareholder Approvals
  Series D Preferred Stock
 pari passu
     First Amendment to Amended and Restated PNC Credit Agreement
 ( )
 Dedicated Line of Credit Agreement with PNC Bank
   31




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##### Table of Contents



Other Related Party Transactions
    Review, Approval or Ratification of Transactions with Related Parties
  
 Item 13.
Principal Accountant Fees and Services
   FY 2010
    
    
    FY 2009Audit fees
    
    $
    182,512
    
    
    $
    240,780Audit related fees (1)
    
    
    20,472
    
    
    
    19,048Audit and audit related fees
    
    
    202,984
    
    
    
    259,828Tax fees (2)
    
    
    12,925
    
    
    
    24,212Total fees
    
    $
    215,909
    
    
    $
    284,040
 
 (1)
    
    Audit related fees consist of fees related to review of the Lenfest transaction
(fiscal 2009) and employee benefit plan audits.(2)
    
    Tax fees consist of tax compliance services and other consultations on miscellaneous tax
matters. 32




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##### Table of Contents



PART IV
 
 Item 14. Exhibits and Financial Statement Schedules.
  Number
    
    Item3.1(i)(1)
    
    Registrants Articles of Incorporation, as amended, were filed as Exhibit 3.1. to Registrants Form 10-K for the year
ended February 28, 1997 and are incorporated herein by reference.3.1(i)(2)
    
    Statement with respect to shares of Series B Cumulative Convertible Participating Preferred Stock, filed as Exhibit
3(i) 1, to Registrants Form 8-K dated April 6, 2006, and incorporated herein by reference.3.1(i)(3)
    
    Statement with respect to shares of Series C Cumulative Convertible Participating Preferred Stock was filed as Exhibit
3(i) 1, to Registrants Form 8-K dated August 28, 2007, and incorporated herein by reference.3.1(i)(4)
    
    Statement with respect to shares of
Series D Convertible Preferred Stock, and incorporated herein by
reference.3.1(ii)
    
    Registrants amended and restated By-Laws were filed as Exhibit 3.2 to Registrants Form 8-K dated May 25, 2005, and
are incorporated herein by reference.3.1(i)(5)
    
    Statement with respect to shares of Series E Convertible Preferred Stock was filed on July 6, 2009 as Exhibit 3.1 to
Registrants Form 8-K and incorporated herein by reference.3.1(i)(6)
    
    Amendment to Articles of Incorporation of the Company was filed on July 6, 2009 as Exhibit 3.2 to Registrants Form
8-K and incorporated herein by reference.4.1
    
    $10,000,000 Senior Subordinated Convertible Note, dated February 18, 2003, issued by the Registrant in favor of H.F.
Lenfest was filed on February 25, 2003 as Exhibit 4.1 to Form 8-K and is incorporated herein by reference.4.2
    
    Unsecured $1 million Promissory Note, dated June 28, 2007 executed by the Registrant in favor of H.F. Lenfest, was
filed on June 28, 2007 as Exhibit 10.1 to Form 8-K and is incorporated by reference.4.3
    
    $15 million Committed Line of Credit Note, dated as of July 31, 2007 issued by the Registrant in favor of and PNC
Bank, National Association, was filed on August 3, 2007 as Exhibit 10.2 to Form 8-K and is incorporated by reference4.4
    
    First Amendment to Senior Subordinated Convertible Note, effective as of February 19, 2008, by the Registrant in favor
of H.F. Lenfest was filed on was filed on March 11, 2008 as Exhibit 10.2 to Form 8-K and is incorporated by reference.4.5
    
    Secured Promissory Note by the Registrant in favor of H.F. Lenfest, dated as of February 20, 2009, was filed on
February 26, 2009 as Exhibit 10.2 to Form 8-K and is incorporated by reference.4.6
    
    Common Stock Warrant issued by the Registrant in favor of H.F. Lenfest, dated as of February 20, 2009, was filed on
February 26, 2009 as Exhibit 10.3 to Form 8-K and is incorporated by reference.4.7
    
    Amended and Restated Warrant, dated as of April 24, 2009, between Registrant and Lenfest, was filed on April 27, 2009
as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.1
    
    Registrants 1998 Stock Option Plan was filed on October 8, 1998 on Form S-8 and is incorporated herein by reference. *10.2
    
    Registrants Employee Stock Purchase Plan was filed on July 6, 1988 as Exhibit A to the Prospectus included in
Registrants Registration Statement (File No. 33-42219) on Form S-8 and is incorporated herein by reference. *10.3
    
    Registrants Stock Award Plan adopted April 7, 1993, was filed as Exhibit 10(ix) to the Registrants Form 10-K for the
fiscal year ended February 25, 1994 and is incorporated herein by reference. *10.4
    
    Registrants 2009 Employee, Director and Consultant Stock Plan was filed on September 4, 2009 on Form S-8 and is
incorporated herein by reference. *10.5
    
    Convertible Note and Warrant Purchase Agreement dated February 18, 2003, by and between the Registrant and Lenfest was
filed on February 25, 2003 as Exhibit 10.8 to Form 8-K and is incorporated herein by reference.10.6
    
    Registration Rights Agreement dated as of February 18, 2003, by and between the Registrant and H.F. Lenfest was filed
on February 25, 2003 as Exhibit 10.9 to Form 8-K and is incorporated herein by reference.
 33




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##### Table of Contents



Number
    
    Item10.7
    
    Security Agreement, made and entered into as of February 18, 2003, by and among the Registrant, Entertainment
Technology Corporation, ETC Delaware, Inc. and H.F. Lenfest was filed on February 25, 2003 as Exhibit 10.10 to
Form 8-K and is incorporated herein by reference.10.8
    
    Guaranty, dated as of February 18, 2003, made by Entertainment Technology Corporation and ETC Delaware, Inc. in favor
of H.F. Lenfest was filed on February 25, 2003 as Exhibit 10.11 to Form 8-K and is incorporated herein by reference.10.9
    
    Subscription Agreement, dated as of February 14, 2005, between the Registrant and H.F. Lenfest, was filed on February
16, 2005 as Exhibit 10.1 to Form 8-K and is incorporated herein by reference.10.10
    
    2005 Non-employee Director Stock Option Plan, incorporated by reference to Annex A of Registrants Definitive Proxy
Statement on Schedule 14A filed on August 16, 2005 and incorporated herein by reference. *10.11
    
    Preferred Stock Purchase Agreement between the Registrant and H.F. Lenfest, dated as of April 6, 2006, filed as
Exhibit 10.1 to Registrants Form 8-K dated April 6, 2006, and incorporated herein by reference.10.12
    
    Registration Rights Agreement between the Registrant and H.F. Lenfest, dated as of April 6, 2006, filed as Exhibit
10.2 to Registrants Form 8-K dated April 6, 2006, and incorporated herein by reference.10.13
    
    Restated Limited Guaranty Agreement, dated as of November 16, 2006, between the Registrant and H.F. Lenfest, was filed
on November 20, 2006 as Exhibit 10.4 to Form 8-K and is incorporated herein by reference.10.14
    
    Employment Agreement, dated as of November 1, 2005, between Registrant and Duane D. Deaner, Chief Financial Officer
was filed on May 24, 2007 as Exhibit 10.33 to the Registrants Form 10-K for the fiscal year ended February 23, 2007
and is incorporated herein by reference.*10.15
    
    Employment Agreement, dated as of July 24, 2006, between Registrant and William F. Mitchell , was filed on July 24,
2006 as Exhibit 10.1 to Form 8-K and is incorporated herein by reference.*10.16
    
    Credit Agreement, dated as of July 31, 2007 between the Registrant and PNC Bank, National Association, was filed on
August 3, 2007 as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.17
    
    Agreement between Registrant and H.F. Lenfest, dated as of May 9, 2007 was filed on May 24, 2007 as Exhibit 10.33 to
the Registrants Form 10-K for the fiscal year ended February 23, 2007 and is incorporated herein by reference.10.18
    
    Amended and Restated Reimbursement Agreement for Letters of Credit, dated as of July 31, 2007 issued by the
Registrant in favor of and PNC Bank, National Association was filed on August 3, 2007 as Exhibit 10.2 to Form 8-K and
is incorporated by reference.10.19
    
    Restated Guaranty Agreement, dated as of July 31, 2007 by H.F. Lenfest in favor of PNC Bank, National Association, was
filed on August 3, 2007 as Exhibit 10.2 to Form 8-K and is incorporated by reference10.20
    
    Series C Preferred Stock Purchase Agreement dated as of August 23, 2007, between the Registrant and H.F. Lenfest as
Exhibit 10.1 to Form 8-K and is incorporated by reference.10.22
    
    Registration Rights Agreement dated as of August 23, 2007, between the Registrant and H.F. Lenfest as Exhibit 10.2 to
Form 8-K and is incorporated by reference.10.22
    
    Letter Agreement, dated as of August 23, 2007, between the Registrant and H.F. Lenfest was filed on August 28, 2007 as
Exhibit 10.3 to Form 8-K and is incorporated by reference.10.23
    
    Administrative Agreement dated as of December 12, 2007 between the Registrant and the Department of the Navy was filed
on December 18, 2007 as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.24
    
    Credit Agreement and Waiver and Amendment between the Registrant and PNC Bank, National Association, dated January 31,
2008 was filed on February 5, 2008 as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.25
    
    Settlement Agreement between the Registrant and the Department of the Navy dated as of February 22, 2008 was filed on
February 26, 2008 as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.26
    
    Amendment No.1 to Convertible Note and Warrant Purchase Agreement, effective as of February 19, 2008, by and between
the Registrant and H.F. Lenfest was filed on March 11, 2008 as Exhibit 10.1 to Form 8-K and is incorporated by
reference.10.27
    
    Letter Agreement between Registrant and H.F. Lenfest, dated as of May 20, 2008 was filed on May 29, 2008 as Exhibit
10.32 to Form 10-K and is incorporated by reference.
 34




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##### Table of Contents



Number
    
    Item10.28
    
    First Amendment to Loan Documents between Registrant and PNC Bank, National Association, was filed on October 7, 2008
as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.29
    
    Security Agreement by the Registrant in favor of H.F. Lenfest, dated as of February 20, 2009, was filed on February
26, 2009 as Exhibit 10.2 to Form 8-K and is incorporated by reference.10.30
    
    Secured Credit Facility and Warrant Purchase Agreement, dated April 24, 2009, between Registrant and H.F. Lenfest, was
filed on April 27, 2009 as Exhibit 10.1 to Form 8-K and is incorporated by reference.10.31
    
    Letter Agreement, dated April 24, 2009, between Registrant and PNC Bank, with the Amended and Restated PNC Credit
Agreement, the Amended and Restated PNC Note, the Amended and Restated Guaranty Agreement, the Pledge Agreement and
the Notification and Control Agreement (each as defined in such letter agreement) attached thereto as exhibits, was
filed on April 27, 2009 as Exhibit 10.3 to Form 8-K and is incorporated by reference.10.32
    
    Second Amended and Restated Subordination Agreement, dated April 24, 2009, among PNC Bank, Lenfest and Registrant, was
filed on April 27, 2009 as Exhibit 10.4 to Form 8-K and is incorporated by reference.10.33
    
    Amended and Restated Open-End Mortgage and Security Agreement, dated as of April 24, 2009, by Registrant in favor of
Lenfest was filed on May 12, 2009 as Exhibit 10.32 to Form 10-K and is incorporated by reference.10.34
    
    Letter Agreement by and between the Registrant and H.F. Lenfest was filed on July 6, 2009 as Exhibit 10.1 to Form 10-K
and is incorporated by reference.10.35
    
    First Amendment to Executive Employment Agreement dated as of June 9, 2009, by and between the Registrant and Duane D.
Deaner was filed on July 6, 2009 as Exhibit 10.2 to Form 10-K and is incorporated by reference.10.36
    
    First Amendment to 2007 PNC Credit Facility, between Registrant and PNC Bank, dated October 1, 2009, was filed on
October 7, 2009 as Exhibit 1.1 to Form 10-K and is incorporated by reference.10.37
    
    Letter Agreement between the Registrant and PNC Bank, dated as of November 16, 2009 was filed on November 20, 2009 as
Exhibit 1.1 to Form 8-K and is incorporated by reference.10.38
    
    Reimbursement Agreement between the Registrant and PNC Bank, dated as of November 16, 2009 was filed on November 20,
2009 as Exhibit 1.2 to Form 8-K and is incorporated by reference.10.39
    
    Pledge Agreement between the Registrant and PNC Bank, dated as of November 16, 2009 was filed on November 20, 2009 as
Exhibit 1.3 to Form 8-K and is incorporated by reference.10.40
    
    Amendment to Subordination Agreement between the Registrant, H.F. Lenfest and PNC Bank, dated as of November 16, 2009,
was filed on November 20, 2009 as Exhibit 1.4 to Form 8-K and is incorporated by reference.10.41
    
    Stock Repurchase Agreement between the Registrant and H.F. Lenfest, dated March 10, 2010, was filed on March 16, 2010,
as Exhibit 10.1 to Form 8-K and is incorporated by reference.13
    
    Portions of Registrants 2010 Annual Report to Shareholders which are incorporated by reference into this Form 10-K.14
    
    Code of Ethics was filed on May 24, 2007 as Exhibit 14 to Form 10-K and is incorporated by reference.16.1
    
    Letter from Grant Thornton LLP dated as of November 28, 2007 was filed on December 4, 2007 as Exhibit 16.1 to Form to
8-K and is incorporated by reference.21
    
    Subsidiaries of the Registrant (Filed herewith).23
    
    Consent of Friedman LLP dated May 27, 2010.(Filed herewith)31.1
    
    Certification dated May 27, 2010 pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 made by William
F. Mitchell, Chief Executive Officer. (Filed herewith)31.2
    
    Certification dated May 27, 2010 pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 made by Duane D.
Deaner, Chief Financial Officer. (Filed herewith)32
    
    Certification dated May 27, 2010 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 made by William F. Mitchell, Chief Executive Officer and Duane D. Deaner, Chief Financial
Officer. (Filed herewith)
 
 *
    
    Represents a management contract or a compensatory plan or arrangement. 35




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##### Table of Contents



SIGNATURES
  ENVIRONMENTAL TECTONICS CORPORATIONBy
    /s/ William F. MitchellWilliam F. Mitchell,President and Chief Executive Officer  Name
    
    Position
    
    Date/s/ William F. Mitchell
    
    Chairman of the Board,
    
    May 27, 2010William F. Mitchell
    
    Chief Executive Officer,
President and Director (Principal
Executive Officer)/s/ Duane D. Deaner
    
    Chief Financial Officer
    
    May 27, 2010Duane D. Deaner
    
    (Principal Financial and
Accounting Officer)/s/ H.F. Lenfest
    
    Director
    
    May 27, 2010H.F. Lenfest/s/ George K. Anderson
    
    Director
    
    May 27, 2010George K. Anderson, M.D./s/ Stephen F. Ryan
    
    Director
    
    May 27, 2010Stephen F. Ryan/s/ George A. Sawyer
    
    Director
    
    May 27, 2010George A. Sawyer
 36




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNo.
    
    Item13
    
    Portions of Registrants 2010 Annual Report to Shareholders which are incorporated by reference into this Form 10-K.21
    
    Subsidiaries of the Registrant.23
    
    Consent of Friedman LLP.31.1
    
    Certification dated May 27, 2010 pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 made by
William F. Mitchell, Chief Executive Officer.31.2
    
    Certification dated May 27, 2010 pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 made by Duane
D. Deaner, Chief Financial Officer.32
    
    Certification dated May 27, 2010 pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 made by William F. Mitchell, Chief Executive Officer and Duane D. Deaner, Chief
Financial Officer.
 37