33113--5/24/2007--ENVIRONMENTAL_TECTONICS

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{regulation, government, change}

{customer, product, revenue}

{operation, international, foreign}

{cost, contract, operation}

{product, market, service}

{system, service, information}

{operation, natural, condition}

{regulation, change, law}

{competitive, industry, competition}

{stock, price, share}

{debt, indebtedness, cash}

We do not currently have a bank facility which can be used to borrow funds for operating purposes. We are attempting to introduce a new business model in two of our divisions. We need to attain validation from the U.S. defense agencies of our Authentic Tactical Fighting Systems technology. We have invested a significant amount of capital and resources in creating the NASTAR Center. Our operations involve rapidly evolving products and technological change. 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-reimbursable contracts may commit us to unfavorable terms. Cost estimates used to account for contracts under the percentage of completion method may vary over time and impact future performance under these contracts. Our contracts and subcontracts that are funded by the U.S. government or foreign governments are subject to government regulations, audits and other requirements. 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 commercial contracts are subject to competition and strict performance and other requirements. There are certain risks inherent in our international business activities, which constitute a significant portion of our business. Legislative actions, higher director and officer insurance costs and potential new accounting pronouncements are likely to cause our general and administrative expenses to increase and impact our future financial condition and results of operations. Although up from the prior year, our fiscal 2008 opening backlog is still relatively lower than the balance at the beginning of most comparable prior fiscal periods. Additionally, our sales backlog is not necessarily indicative of revenues that we will actually realize in fiscal year 2008 or at all. Our operations could be hurt by terrorist attacks, war, disease and other activities or occurrences that make air travel difficult or reduce the willingness of our commercial airline customers to purchase our simulation products. There is limited trading activity in our common stock which could make it difficult for our investors to sell their shares of our common stock.

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33113--5/24/2007--ENVIRONMENTAL_TECTONICS_CORP