33113--5/25/2006--ENVIRONMENTAL_TECTONICS

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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 24, 2006. These risks and uncertainties include the following items. This list is not inclusive of all the risks and uncertainties associated with our business. We have major litigation and claims in process and these require a significant amount of management time and effort. Additionally, legal costs are a major portion of our general and administrative spending, thus redirecting funds from other operating activities. There is a risk of an unfavorable outcome in litigation and resulting potential negative financial impact on our operating results. Our sources of revenues are not consistent; in any given fiscal year a substantial portion of our revenues is derived from a small number of customers that may not be recurring customers in future years. Our significant debt could adversely affect our financial resources and prevent us from satisfying our debt service obligations. We do not currently have a bank facility which can be used to borrow funds for operating purposes. Additionally, covenants and restrictions in our credit facility, and any additional changes in the facility amount or structure, could limit our ability to take certain actions and fund our operations. 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. If the commercial simulation business conducted by our Aircrew Training Systems Segment declines, our sales will decrease. 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 and 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. Our fiscal 2006 new contract bookings and fiscal 2007 opening backlog is significantly lower than any comparable fiscal period for the most recent prior periods. Additionally, our sales backlog is not necessarily indicative of revenues that we will actually realize in fiscal year 2006 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 more difficult for our investors to sell their shares of our common stock. The market price of our common stock may be volatile. Our quarterly operating results may vary significantly from quarter to quarter. 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.

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33113--5/25/2006--ENVIRONMENTAL_TECTONICS_CORP