UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. -20549

FORM 10-Q

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended January ~~27, 2018~~26, 2019

☐

☐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 1-9065

ECOLOGY AND ENVIRONMENT INC.

(Exact name of registrant as specified in its charter)

New York		16-0971022
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)


368 Pleasant View Drive
Lancaster, New York		14086
(Address of principal executive offices)		(Zip code)

(716) 684-8060

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock par value $.01 per share	EEI	Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☑

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Exchange Act Rule 12b-2). (Check one):

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer (Do not check if a smaller reporting company)	☐		Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

At ~~February 28, 2018, 3,008,829~~April 30, 2019, 3,110,130 shares of Registrant's Class A Common Stock (par value $.01) and ~~1,292,775~~1,205,005 shares of Registrant’s Class B Common Stock (par value $.01) were outstanding.

EXPLANATORY NOTE REGARDING RESTATEMENTS

As previously disclosed in the Current Report on Form 8-K filed by Ecology and Environment Inc. (“EEI” or the “Company”) with the Securities and Exchange Commission (the “SEC”) on December 12, 2018, the Audit Committee of the Board of Directors (the “Audit Committee”) concluded that the Company’s consolidated financial statements and related reports filed with the SEC for periods ended prior to July 31, 2018 should no longer be relied upon due to errors related to accounting for EEI’s investment in Gestion Ambiental Consultores S.A. (“GAC”) since 1999. The Company had previously included GAC’s financial statements in consolidated financial statements filed with the SEC prior to July 31, 2018. In December 2018, the Company determined that, although it had a majority ownership interest in GAC, it did not have a controlling interest in GAC’s operations due to lack of continuous control over the activities of GAC’s board of directors and senior management team. As a result, the Company’s net investment in GAC should have been accounted for using the equity method of accounting.

The financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018 included a restated consolidated balance sheet at July 31, 2017, and restated consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for the fiscal years ended July 31, 2017 and 2016. This Quarterly Report on Form 10-Q includes restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three and six months ended January 27, 2018. In addition, tables related to revenues, operating expenses and income taxes for the three and six months ended January 27, 2018 included in Item 2 of this Quarterly Report on Form 10-Q have also been restated.

Collectively, the adjustments necessary to deconsolidate GAC’s unaudited financial statements and correctly account for the Company’s investment in GAC under the equity method of accounting are referred to as the “GAC Deconsolidation Adjustments.” In addition to the GAC Deconsolidation Adjustments, previously filed financial statements for the quarter ended October 28, 2017 were also adjusted for correction of other errors in the financial statements and disclosures that were deemed to be immaterial on an individual basis and in the aggregate for the quarter (the “Out of Period Adjustments”). Specific impacts of the GAC Deconsolidation Adjustments and Out of Period Adjustments on various financial statement line items are summarized in Note 2 of the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Internal Controls and Disclosure Controls Considerations

In connection with control deficiencies related to the errors outlined above, and other control deficiencies identified by management, our Acting Principal Executive Officer (the “Acting PEO”) and Acting Chief Financial Officer (the “Acting CFO”) determined that there were deficiencies in our internal control over financial reporting that, in the aggregate, represented material weaknesses at July 31, 2018. Accordingly, our Acting PEO and Acting CFO have concluded that the Company’s disclosure controls and procedures and internal control over financial reporting were not effective at July 31, 2018. Refer to Part I, Item 4 of this Quarterly Report on Form 10-Q for a description of the control deficiencies identified by management and management’s plan to remediate those deficiencies.

Page 2 of 37

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Ecology and Environment Inc.

Condensed Consolidated Balance Sheets

Unaudited

(amounts in thousands, except share data)

	Balance at						January 26, 2019			July 31, 2018
	January 27, 2018			July 31, 2017
Assets

Current assets:
Cash, cash equivalents and restricted cash	$	17,707		$	13,343
Cash and cash equivalents							$	11,017		$	13,496
Investment securities available for sale		1,486			1,498			1,512			1,497
Contract receivables, net of allowance for doubtful accounts and contract adjustments of $1,957 and $2,125, respectively		28,365			35,107
Contract receivables, net								25,946			25,615
Income tax receivable		750			1,293			1,627			1,230
Other current assets		2,427			2,119			2,539			1,752

Total current assets		50,735			53,360			42,641			43,590

Property, buildings and equipment, net of accumulated depreciation of $17,500 and $16,994, respectively		4,361			4,428
Property, buildings and equipment, net of accumulated depreciation of $17,250 and $16,799, respectively								3,589			3,870
Deferred income taxes		733			1,203			788			789
Equity method investment								2,289			2,058
Other assets		1,729			1,786			2,222			2,522

Total assets	$	57,558		$	60,777		$	51,529		$	52,829

Liabilities and Shareholders' Equity

Current liabilities:			��
Accounts payable	$	5,245		$	8,073		$	6,108		$	5,635
Lines of credit		435			581			222			-
Accrued payroll costs		5,727			6,338			4,915			6,066
Current portion of long-term debt and capital lease obligations		61			382			45			54
Billings in excess of revenue		3,363			2,850
Customer deposits								2,851			3,191
Other accrued liabilities		2,488			2,645			1,435			1,382

Total current liabilities		17,319			20,869			15,576			16,328

Income taxes payable		329			31			-			-
Deferred income taxes		3			3			-			-
Long-term debt and capital lease obligations		61			66			34			54
Commitments and contingencies (Note 15)		-			-
Commitments and contingencies (Note 13)								-			-

Shareholders' equity:
Preferred stock, par value $.01 per share (2,000,000 shares authorized; no shares issued)		-			-			-			-
Class A common stock, par value $.01 per share (6,000,000 shares authorized; 3,036,149 and 3,035,778 shares issued)		30			30
Class B common stock, par value $.01 per share; (10,000,000 shares authorized; 1,357,576 and 1,357,947 shares issued)		14			14
Class A common stock, par value $.01 per share (6,000,000 shares authorized; 3,102,654 and 3,041,911 shares issued, respectively)								31			30
Class B common stock, par value $.01 per share; (10,000,000 shares authorized; 1,291,071 and 1,351,814 shares issued, respectively)								13			14
Capital in excess of par value		17,608			17,608			17,629			17,558
Retained earnings		23,274			23,509			20,539			20,973
Accumulated other comprehensive loss		(1,946	)		(2,018	)		(1,893	)		(1,885	)
Treasury stock, at cost (Class A common: 27,320 shares; Class B common: 64,801 shares)		(1,037	)		(1,037	)
Treasury stock, at cost (Class A common: 13,789 and 15,789 shares, respectively; Class B common: 64,801 shares at both dates)								(884	)		(907	)

Total Ecology and Environment, Inc. shareholders' equity		37,943			38,106			35,435			35,783
Noncontrolling interests		1,903			1,702			484			664

Total shareholders' equity		39,846			39,808			35,919			36,447

Total liabilities and shareholders' equity	$	57,558		$	60,777		$	51,529		$	52,829

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Page 2 of 29~~

Page 3 of 37

Ecology and Environment Inc.

Condensed Consolidated Statements of Operations

Unaudited

(amounts in thousands, except share data)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017			January 26, 2019			January 27, 2018 (Restated)			January 26, 2019			January 27, 2018 (Restated)

Revenue, net	$	25,083		$	24,726		$	52,165		$	50,041
Gross revenue													$	20,252		$	21,289		$	42,004		$	47,394

Cost of professional services and other direct operating expenses		9,078			9,030			18,559			18,440			7,774			7,966			15,908			16,584
Subcontract costs		5,769			5,347			11,498			9,358			3,619			4,429			8,193			10,778
Administrative and indirect operating expenses		7,290			7,478			14,748			14,860
Marketing and related costs		2,938			2,344			5,989			5,209
Selling, general and administrative expenses														9,452			9,483			18,652			19,265
Depreciation and amortization		268			282			537			516			264			259			541			519

(Loss) income from operations		(260	)		245			834			1,658			(857	)		(848	)		(1,290	)		248
Net interest expense		(9	)		(14	)		(13	)		(12	)
Net foreign exchange loss		(29	)		(60	)		(26	)		(72	)

Income from equity method investment														171			221			231			239
Net interest income (expense)														45			(4	)		98			(2	)
Net foreign exchange gain (loss)														(15	)		(25	)		8			(20	)
Other income (expense)		12			(6	)		11			10			(19	)		12			9			12

(Loss) income before income tax provision		(286	)		165			806			1,584			(675	)		(644	)		(944	)		477
Income tax provision		311			504			755			1,073
Income tax (benefit) provision														(365	)		(116	)		(519	)		317

Net (loss) income		(597	)		(339	)		51			511			(310	)		(528	)		(425	)		160

Net (income) loss attributable to noncontrolling interests		(171	)		21			(286	)		59
Net loss (income) attributable to noncontrolling interests														1			9			(4	)		(91	)

Net (loss) income attributable to Ecology and Environment, Inc.	$	(768	)	$	(318	)	$	(235	)	$	570
Net (loss) income attributable to Ecology and Environment Inc.													$	(309	)	$	(519	)	$	(429	)	$	69

Net (loss) income per common share: basic and diluted	$	(0.18	)	$	(0.07	)	$	(0.05	)	$	0.13		$	(0.07	)	$	(0.12	)	$	(0.10	)	$	0.02

Weighted average common shares outstanding: basic and diluted		4,301,604			4,294,102			4,301,604			4,293,417			4,315,135			4,301,604			4,314,543			4,301,604

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Page 3 of 29~~

Page 4 of 37

Ecology and Environment Inc.

Condensed Consolidated Statements of Comprehensive Income

Unaudited

(amounts in thousands)

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017			January 26, 2019			January 27, 2018 (Restated)			January 26, 2019			January 27, 2018 (Restated)

Net (loss) income including noncontrolling interests	$	(597	)	$	(339	)	$	51		$	511		$	(310	)	$	(528	)	$	(425	)	$	160
Foreign currency translation adjustments		166			70			195			124			47			51			(80	)		37
Unrealized investment losses, net		(13	)		(20	)		(16	)		(31	)		-			(13	)		-			(16	)

Comprehensive (loss) income		(444	)		(289	)		230			604			(263	)		(490	)		(505	)		181

Comprehensive (income) loss attributable to noncontrolling interests		(264	)		4			(393	)		(5	)		8			(29	)		63			(123	)

Comprehensive (loss) income attributable to Ecology and Environment, Inc.	$	(708	)	$	(285	)	$	(163	)	$	599		$	(255	)	$	(519	)	$	(442	)	$	58

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~Page 4 of 29~~

Page 5 of 37

Ecology and Environment Inc.

Condensed Consolidated Statements of Cash Flows

Unaudited

(amounts in thousands)

Six Months Ended
January 27, 2018 January 28, 2017
Cash flows from operating activities:
Net income $ 51 $ 511
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 537 516
Deferred income tax benefit 436 2,351
Tax impact of share-based compensation - (6 )
Gain on sale of assets and investment securities (1 ) (3 )
Net recovery of contract adjustments and doubtful accounts (35 ) (1,154 )
Net bad debt (recovery) expense (130 ) 167
Changes in:
- contract receivables 7,248 3,108
- other current assets (300 ) (392 )
- income tax receivable 543 (2,098 )
- other non-current assets 60 (25 )
- accounts payable (1,996 ) (149 )
- accrued payroll costs (640 ) (971 )
- income taxes payable 294 (3 )
- billings in excess of revenue 506 942
- other accrued liabilities (250 ) 352
Net cash provided by operating activities 6,323 3,146

Cash flows from investing activities:
Proceeds from sale of subsidiaries - 75
Purchase of property, buildings and equipment (425 ) (183 )
Proceeds from sale of equipment 1 9
Purchase of investment securities 7 (15 )
Net cash used in investing activities (417 ) (114 )

Cash flows from financing activities:
Dividends paid (860 ) (861 )
Repayment of debt (358 ) (159 )
Net (repayments) borrowings under lines of credit (152 ) 286
Distributions to noncontrolling interests (192 ) (673 )
Net cash used in financing activities (1,562 ) (1,407 )

Effect of exchange rate changes on cash and cash equivalents 20 74

Net increase in cash, cash equivalents and restricted cash 4,364 1,699
Cash, cash equivalents and restricted cash at beginning of period 13,343 10,161

Cash, cash equivalents and restricted cash at end of period $ 17,707 $ 11,860

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 42 $ 77
Income taxes 78 315
Supplemental disclosure of non-cash items:
Dividends declared and not paid - 859
Proceeds from capital lease obligations 33 -

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~Page 5 of 29~~

~~Ecology and Environment, Inc.~~

~~Condensed Consolidated Statements of Shareholders’ Equity~~

~~(amounts in thousands, except share data)~~

Class A
Common
Stock
Shares

Class A
Common
Stock
Amount

Class B
Common
Stock
Shares

Class B
Common
Stock
Amount

Capital in
Excess of
Par Value

Retained
Earnings

Accumulat
ed Other
Comprehe
nsive
Income
(Loss)

Treasury
Stock
Shares

Treasury
Stock
Amount

Noncontrol
ling
Interest

Balance at July 31, 2016 (audited) 3,035,778 $ 30 1,357,947 $ 14 $ 16,606 $ 22,237 $ (2,143 ) 104,073 $ (1,172 ) $ 2,333

Net income (loss) - - - - - 3,015 - - - (62 )
Foreign currency translation adjustment - - - - - - 143 - - 87
Cash dividends declared ($0.40 per share) - - - - - (1,719 ) - - - -
Unrealized investment losses, net - - - - - - (18 ) - - -
Issuance of stock under stock award plan - - - - 4 - - (11,952 ) 135 -
Tax impact of share based compensation - - - - (6 ) - - - - -
Tax impact of noncontrolling interests - - - - - (24 ) - - - 24
Distributions to noncontrolling interests - - - - - - - - - (680 )
Adjustment to deferred income taxes related to acquisition of noncontrolling interests in prior years - - - - 1,004 - - - - -

Balance at July 31, 2017 (audited) 3,035,778 $ 30 1,357,947 $ 14 $ 17,608 $ 23,509 $ (2,018 ) 92,121 $ (1,037 ) $ 1,702

Net (loss) income - - - - - (235 ) - - - 286
Foreign currency translation adjustment - - - - - - 88 - - 107
Unrealized investment losses, net - - - - - - (16 ) - - -
Conversion of Class B common stock to Class A common stock 371 - (371 ) - - - - - - -
Distributions to noncontrolling interests - - - - - - - - - (192 )

Balance at January 27, 2018 (unaudited) 3,036,149 $ 30 1,357,576 $ 14 $ 17,608 $ 23,274 $ (1,946 ) 92,121 $ (1,037 ) $ 1,903

	Six Months Ended
	January 26, 2019			January 27, 2018 (Restated)
Cash flows from operating activities:
Net (loss) income	$	(425	)	$	160
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		541			519
Provision for deferred income taxes		(6	)		(92	)
Share based compensation expense		127			70
Gain on sale of assets and investment securities		(2	)		(1	)
Net provision for (recovery of) contract adjustments		137			(35	)
Net bad debt (recovery) expense		(187	)		(98	)
Changes in:
- contract receivables		(247	)		6,823
- other current assets		(916	)		(150	)
- income tax receivable		(381	)		668
- equity method investment		(231	)		(239	)
- other non-current assets		277			36
- accounts payable		1,322			(1,485	)
- accrued payroll costs		(1,162	)		(740	)
- income taxes payable		-			302
- customer deposits		(345	)		558
- other accrued liabilities		43			(216	)
Net cash (used in) provided by operating activities		(1,455	)		6,080

Cash flows from investing activities:
Purchase of property, buildings and equipment		(259	)		(415	)
Proceeds from sale of equipment		2			1
(Purchase) sale of investment securities		(16	)		7
Net cash used in investing activities		(273	)		(407	)

Cash flows from financing activities:
Dividends paid		(863	)		(860	)
Repayment of debt		(29	)		(358	)
Net borrowings under lines of credit		210			66
Distributions to noncontrolling interests		(116	)		(192	)
Net cash used in financing activities		(798	)		(1,344	)

Effect of exchange rate changes on cash and cash equivalents		49			5

Net (decrease) increase in cash, cash equivalents and restricted cash		(2,477	)		4,334
Cash, cash equivalents and restricted cash at beginning of period		13,746			13,135

Cash, cash equivalents and restricted cash at end of period	$	11,269		$	17,469

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	8		$	31
Income taxes		300			12
Supplemental disclosure of non-cash items:
Proceeds from capital lease obligations		-			33

The accompanying notes are an integral part of these condensed consolidated financial statements.

Page 6 ~~of 29~~ of 37

Ecology and Environment Inc.

Notes to Condensed Consolidated Financial Statements

1.	Organization and Basis of Presentation

Ecology and Environment Inc., (“EEI”) was incorporated in 1970 as a global broad-based environmental consulting firm whose underlying philosophy is to provide professional services worldwide so that sustainable economic and human development may proceed with acceptable impact on the environment. ~~Together with~~During the six months ended January 26, 2019, EEI and its subsidiaries (collectively, the “Company”)~~, EEI has direct~~ included six active wholly-owned and ~~indirect ownership in 8 active wholly owned and majority owned~~majority-owned operating subsidiaries located in ~~5 countries.~~four countries (the United States of America (the “U.S.”), Brazil, Peru, and Ecuador), and one majority-owned equity investment in Chile. The Company’s staff is comprised of individuals representing ~~more than 80~~numerous scientific, engineering, health, and social disciplines working together in multidisciplinary teams to provide innovative environmental solutions. The ~~Company has completed more than 50,000 projects for a wide variety~~majority of ~~clients~~employees hold bachelor’s and/or advanced degrees in ~~more than 120 countries, providing environmental solutions in nearly every ecosystem on the planet.~~ such areas as chemical, civil, mechanical, sanitary, soil, structural and transportation engineering, biology, geology, hydrogeology, ecology, urban and regional planning and oceanography. The Company’s client list includes governments, industries, multinational corporations, organizations, and private companies.

The Company prepared the accompanying unaudited condensed consolidated financial statements ~~included herein, without audit,~~ pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of such information. All such adjustments are of a normal recurring nature.

Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), including a description of significant accounting policies, have been condensed or omitted pursuant to SEC rules and regulations. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, ~~2017~~2018 filed with the ~~Securities and Exchange Commission~~SEC (the ~~“2017~~“2018 Annual Report”). ~~The~~Other than new or revised accounting policies resulting from the adoption of new accounting pronouncements described in Note 3 of these condensed consolidated financial statements, the accounting policies followed by the Company for preparation of the consolidated financial statements included in the ~~2017~~2018 Annual Report were also followed for this ~~interim~~quarterly report. The condensed consolidated results of operations for the three and six months ended January ~~27, 2018~~26, 2019 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, ~~2018.~~2019.

2.	Restatement of Unaudited Condensed Consolidated Financial Statements

As previously disclosed in the Current Report on Form 8-K filed by the Company with the SEC on December 12, 2018, the Audit Committee of the Board of Directors (the “Audit Committee”) determined that the Company’s previously issued financial statements for quarterly periods prior to July 31, 2018 can no longer be relied upon due to errors related to accounting for EEI’s investment in Gestion Ambiental Consultores S.A. (“GAC”) since 1999. The Company intends to prospectively amend financial statements for the quarters ended October 28, 2017, January 27, 2018 and April 28, 2018 when it files its Quarterly Reports on Form 10-Q for the corresponding quarters during the fiscal year ending July 31, 2019. As a result, the accompanying unaudited condensed consolidated financial statements include restated unaudited condensed consolidated statements of operations, comprehensive income, cash flows and shareholders’ equity for the fiscal quarter and six months ended January 27, 2018.

The Company had previously included GAC’s financial statements in consolidated financial statements filed with the SEC prior to July 31, 2018. In December 2018, the Company determined that, although it had a majority ownership interest in GAC, it did not have a controlling interest in GAC’s operations due to lack of continuous control over the activities of GAC’s board of directors and senior management team. As a result, the Company’s net investment in GAC should have been accounted for using the equity method of accounting.

Collectively, the adjustments necessary to deconsolidate GAC’s unaudited financial statements and correctly account for the Company’s investment in GAC under the equity method of accounting are referred to as the “GAC Deconsolidation Adjustments.” For the three months ended January 27, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $3.2 million and $0.3 million in consolidated gross revenue and income before income tax provision, respectively, and had no impact on net income attributable to EEI. For the six months ended January 27, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $5.3 million and $0.4 million in consolidated gross revenue and income before income tax provision, and had no impact on net income attributable to EEI.

Page 7 of 37

In addition to the GAC Deconsolidation Adjustments, previously filed financial statements for the quarter and six months ended October 28, 2017 were also adjusted for correction of other errors in the financial statements and disclosures that were deemed to be immaterial on an individual basis and in the aggregate for those reporting periods (the “Out of Period Adjustments”). For the three months ended January 27, 2018, the Out of Period Adjustments resulted in decreases of $0.6 million and less than $0.1 million of consolidated gross revenue and income before income tax provision, respectively, and an increase of $0.2 million of net income attributable to EEI. For the six months ended January 27, 2018, the Out of Period Adjustments resulted in increases of $0.5 million, less than $0.1 million and $0.3 million of consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.

The “As Previously Reported” amounts in the tables below represent the amounts reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended January 26, 2018, filed with the SEC on March 13, 2018.

Ecology and Environment Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

	Three Months Ended January 27, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments			Restated

Gross revenue	$	25,083		$	(3,154	)	$	(640	)	$	21,289

Direct cost of professional services and other direct operating expenses		9,078			(1,112	)		-			7,966
Subcontract costs		5,769			(731	)		(609	)		4,429
Selling, general and administrative expenses		10,228			(745	)		-			9,483
Depreciation and amortization		268			(9	)		-			259

Income (loss) from operations		(260	)		(557	)		(31	)		(848	)

Income from equity method investment		-			221			-			221
Net interest income (expense)		(9	)		5			-			(4	)
Net foreign exchange (loss) gain		(29	)		4			-			(25	)
Other income (expense)		12			-			-			12

Income (loss) before income tax provision		(286	)		(327	)		(31	)		(644	)
Income tax provision		311			(148	)		(279	)		(116	)

Net (loss) income		(597	)		(179	)		248			(528	)

(Income) loss attributable to noncontrolling interests		(171	)		179			1			9

Net (loss) income attributable to Ecology and Environment Inc.	$	(768	)	$	-		$	249		$	(519	)

Net (loss) income per common share: basic and diluted	$	(0.18	)							$	(0.12	)

Weighted average common shares outatanding: basic and diluted		4,301,604									4,301,604

Page 8 of 37

	Six Months Ended January 27, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments			Restated

Gross revenue	$	52,165		$	(5,266	)	$	495		$	47,394

Direct cost of professional services and other direct operating expenses		18,559			(1,975	)		-			16,584
Subcontract costs		11,498			(1,190	)		470			10,778
Selling, general and administrative expenses		20,737			(1,472	)		-			19,265
Depreciation and amortization		537			(18	)		-			519

Income (loss) from operations		834			(611	)		25			248

Income from equity method investment		-			239			-			239
Net interest income (expense)		(14	)		12			-			(2	)
Net foreign exchange (loss) gain		(26	)		6			-			(20	)
Other income (expense)		12			-			-			12

Income (loss) before income tax provision		806			(354	)		25			477
Income tax provision		755			(160	)		(278	)		317

Net (loss) income		51			(194	)		303			160

(Income) loss attributable to noncontrolling interests		(286	)		194			1			(91	)

Net (loss) income attributable to Ecology and Environment Inc.	$	(235	)	$	-		$	304		$	69

Net (loss) income per common share: basic and diluted	$	(0.05	)							$	0.02

Weighted average common shares outatanding: basic and diluted		4,301,604									4,301,604

Page 9 of 37

Ecology and Environment Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

	Three Months Ended January 27, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments		Restated

Net income including noncontrolling interests	$	(597	)	$	(179	)	$	248	$	(528	)
Foreign currency translation adjustments		166			(115	)		-		51
Unrealized investment (losses) gains, net		(13	)		-			-		(13	)

Comprehensive income		(444	)		(294	)		248		(490	)
Comprehensive (income) loss attributable to noncontrolling interests		(264	)		235			-		(29	)

Comprehensive income attributable to EEI	$	(708	)	$	(59	)	$	248	$	(519	)

	Six Months Ended January 27, 2018
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments		Restated

Net income including noncontrolling interests	$	51		$	(194	)	$	303	$	160
Foreign currency translation adjustments		195			(158	)		-		37
Unrealized investment (losses) gains, net		(16	)		-			-		(16	)

Comprehensive income		230			(352	)		303		181
Comprehensive (income) loss attributable to noncontrolling interests		(393	)		270			-		(123	)

Comprehensive income attributable to EEI	$	(163	)	$	(82	)	$	303	$	58

Page 10 of 37

Ecology and Environment Inc.

Condensed Consolidated Statement of Cash Flows

(amounts in thousands)

	Six Months Ended January 27, 2018
	As Previously Reported			Impact of GAC Deconsolidation			Other Adjustments			Restated

Cash flows from operating activities:
Net income	$	51		$	(194	)	$	303		$	160
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		537			(18	)		-			519
Provision for deferred income taxes		436			(266	)		(262	)		(92	)
Share based compensation expense		-			-			70			70
(Gain) loss on sale of assets and investment securities		(1	)		-			-			(1	)
Net recovery of contract adjustments		(35	)		-			-			(35	)
Net bad debt (recovery) expense		(130	)		32			-			(98	)
Changes in:
- contract receivables		7,248			261			(686	)		6,823
- other current assets		(300	)		5			145			(150	)
- income tax receivable		543			142			(17	)		668
- equity method investment		-			(239	)		-			(239	)
- other non-current assets		60			(13	)		(11	)		36
- accounts payable		(1,996	)		69			442			(1,485	)
- accrued payroll costs		(640	)		(100	)		-			(740	)
- income taxes payable		294			8			-			302
- customer deposits		506			52			-			558
- other accrued liabilities		(250	)		34			-			(216	)
Net cash provided by (used in) operating activities		6,323			(227	)		(16	)		6,080

Cash flows from investing activities:
Purchase of property, building and equipment		(425	)		10			-			(415	)
Proceeds from sale of building and equipment		1			-			-			1
Purchase of investment securities		7			-			-			7
Net cash (used in) provided by investing activities		(417	)		10			-			(407	)

Cash flows from financing activities:
Dividends paid		(860	)		-			-			(860	)
Repayment of debt		(358	)		-			-			(358	)
Net borrowings (repayment) of lines of credit		(152	)		218			-			66
Distributions to noncontrolling interests		(192	)		-			-			(192	)
Net cash (used in) provided by financing activities		(1,562	)		218			-			(1,344	)

Effect of exchange rate changes on cash and cash equivalents		20			(24	)		9			5

Net increase (decrease) in cash, cash equivalents and restricted cash		4,364			(23	)		(7	)		4,334
Cash, cash equivalents and restricted cash at beginning of period		13,343			(208	)		-			13,135

Cash, cash equivalents and restricted cash at end of period	$	17,707		$	(231	)	$	(7	)	$	17,469

3.	Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) establishes changes to U.S. GAAP in the form of accounting standards updates (“ASUs”) to the FASB Accounting Standards ~~Codification.~~Codification (“ASC”). The Company considers the applicability and impact of all ASUs when they are issued by FASB. ASUs listed below were either adopted by the Company during its current fiscal year, or will be adopted as each ASU becomes effective during future reporting periods. ASUs not listed below were assessed to be not applicable to the Company’s operations or are expected to have minimal impact on the Company’s consolidated financial position or results of operations.

Page 11 of 37

Accounting Pronouncements Adopted During the Six Months Ended January ~~27, 2018~~

~~The Company did not adopt any ASUs during the six months ended January 27, 2018 that had, or are expected to have, a material impact on its consolidated financial position or results of operations.~~

~~Accounting Pronouncements Not Yet Adopted as of January 27, 2018~~26, 2019

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09, isas amended by subsequent ASUs that amended and clarified the ~~result of a joint project of FASB and the International Accounting Standards Board to clarify the principles for recognizing revenue and to develop a common revenue standard for use~~guidance in ~~the U.S and internationally.~~ ASU 2014-09, ~~supersedes~~forms the basis for FASB ASC Topic 606 (“ASC Topic 606”), which superseded previous authoritative U.S. GAAP guidance regarding revenue ~~recognition requirements in~~recognition. The Company adopted ASC Topic ~~605~~606 effective August 1, 2018. Refer to Note 6 of FASB’s Accounting Standards Codification (the “Codification”) and most industry-specific guidance throughout the Industry Topics of the Codification. ASU 2014-09 enhances comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, reduces the number of requirements an entity must consider for recognizing revenue, and requires improved disclosures to help users ofthese condensed consolidated financial statements ~~better understand~~for additional disclosures regarding the ~~nature, amount, timing, and uncertainty~~Company’s adoption of ~~revenue that is recognized.~~ASC Topic 606.

~~ASU 2014-09 was to be effective for annual reporting periods beginning after December 15,~~In January 2016, ~~including interim periods within the annual reporting period. In August 2015,~~ FASB issued ASU No. ~~2015-14, Revenue from Contracts with Customers (Topic 606), Deferral~~2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of ~~the Effective Date~~Financial Assets and Financial Liabilities (“ASU ~~2015-14”~~2016-01”). The amendments in ASU ~~2015-14 defer~~2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In February 2018, FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities, which clarified certain aspects of the ~~effective date~~guidance issued in ASU 2016-01. Under the new guidance, entities are no longer able to classify equity investments as either trading or available for sale (“AFS”), and may no longer recognize unrealized holding gains and losses in other comprehensive income on equity securities that were classified as AFS under previous U.S. GAAP. The Company adopted the applicable provisions of ASU ~~2014-09 for all entities by one year.~~

~~Page 7 of 29~~

~~Subsequent to the issuance of ASU 2014-09, FASB issued additional ASUs that provide clarification for specific aspects of ASU 2014-09. The~~2016-01 effective ~~dates and transition requirements for these ASUs are the same as the effective dates and transition requirements included in ASU 2014-09 and ASU 2015-14.~~

~~ASU 2014-09 requires retrospective application by either restating each prior period presented in the financial statements, or~~August 1, 2018 by recording ~~the~~a cumulative effect ~~on prior reporting periods~~adjustment of less than $0.1 million to beginning retained earnings inand beginning accumulated other comprehensive income on the ~~year that~~condensed consolidated balance sheets. The cumulative effect adjustment is also separately reported on the ~~standard becomes effective (the “modified retrospective approach”), and includes a number~~condensed consolidated statements of ~~optional practical expedients that entities may elect to apply. The Company expects to adopt the revenue recognition guidance using the modified retrospective approach.~~

ASU 2014-09 will be effective for the Company beginning August 1, 2018. The Company is comparing historical accounting policies and practices to the new standard, has made substantial progress on its detailed review of contracts for its operations in the United States, and has begun the evaluation at all of its foreign subsidiaries. Management continues to assess the impact of ASU 2014-09.shareholders’ equity.

In August 2016, FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230) – Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). The amendments included in this update provide guidance regarding eight specific cash flow classification issues that are not specifically addressed in previous U.S. ~~GAAP. This~~GAAP, only one of which was deemed applicable to the Company’s cash flow reporting. Issue 6 of ASU 2016-15 requires that reporting entities elect an accounting ~~standard update will~~policy to classify distributions received from equity method investees using one of two possible approaches:

the “cumulative earnings approach,” under which, subject to certain limitations, distributions received from equity investees are considered returns on investment and classified as cash inflows from operating activities; or

the “nature of the distribution approach,” under which distributions received from equity investees should be ~~effective for~~classified on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as a cash inflow from operating activities) or a return of investment (classified as a cash inflow from investing activities).

The Company ~~beginning August 1, 2018. Management is currently assessing~~adopted the provisions of ASU 2016-15 effective August 1, 2018 and ~~has not yet estimated~~elected the “cumulative earnings approach.”

The Company received $0.2 million of dividends from its ~~impact on~~equity method investee during the ~~Company’s consolidated financial statements.~~six months ended January 26, 2019 that are included in cash flows from operating activities.

Accounting Pronouncements Not Yet Adopted as of January 26, 2019

In March 2016, FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). The main difference between previous U.S. GAAP and ASU 2016-02, as amended by subsequent ASUs, is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 provides specific guidance for determining whether a contractual arrangement contains a lease, lease classification by lessees and lessors, initial and subsequent measurement of leases by lessees and lessors, sale and leaseback transactions, transition, and financial statement disclosures. ASU 2016-02 requires entities to use a modified retrospective approach to apply its guidance, and includes a number of optional practical expedients that entities may elect to apply. ASU 2016-02 will be effective for the Company beginning August 1, 2019. ~~Early adoption is permitted.~~ Management is currently assessing the provisions of ASU 2016-02. The Company anticipates that adoption of ASU 2016-02 will result in the addition of material right-of-use assets and lease liabilities to the Company’s consolidated balance sheet in addition to expanding required disclosures. Management has not yet estimated the impact of ASU 2016-02 on the Company’s consolidated statements of operations and cash flows.

In June 2016, FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”). The amendments included in this update affect entities holding financial assets, including trade receivables and investment securities available for sale, that are not accounted for at fair value through net income. ASU 2016-13 requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The amendments included in this update also provide guidance for measurement of expected credit losses and for presentation of increases or decreases of expected credit losses on the statement of operations. ASU No. 2016-13 will be effective for the Company beginning August 1, 2020. Early adoption is permitted for the Company beginning August 1, 2019. Management is currently assessing the provisions of ASU 2016-13 and has not yet estimated its impact on the Company’s consolidated financial statements.

Page 12 of 37

In January 2017, FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The amendments included in this update simplify the subsequent measurement of goodwill by revising the steps required during the registrant’s annual goodwill impairment test. This accounting standard update will be effective for the Company beginning August 1, 2021. Management is currently assessing the provisions of ASU 2017-04 and has not yet estimated its impact on the Company’s consolidated financial statements.

3.	~~U.S. Tax Reform~~

~~Page 8 of 29~~

The changes included in the Tax Act are broad and complex. The tax provision recorded for the three and six months ended January 27, 2018 reflects management’s estimates of the Tax Act’s impacts. The SEC has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize and record the related tax impacts. Management intends to finalize and record any adjustments related to implementation of Tax Act provisions by the end of the Company’s fiscal year ending July 31, 2018. The final transition impacts of the Tax Act may differ from current estimates due to, among other things, changes in interpretations of the Tax Act, subsequent legislative action to further revise the Tax Act, changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or updates or changes to the Company’s estimates utilized to calculate the transition impacts.

~~Specific impacts of the Tax Act are summarized in Note 9 of these condensed consolidated financial statements.~~

4.	Cash, Cash Equivalents and Restricted Cash

Cash, cash equivalents and restricted cash are summarized in the following table.

		Balance at				Balance at
		January 27, 2018		July 31, 2017		January 26, 2019		July 31, 2018
	(in thousands)					(in thousands)
Cash and cash equivalents		$	17,412	$	13,029	$	11,017	$	13,496
Restricted cash			295		314
Restricted cash included in other assets							252		250
Total cash, cash equivalents and restricted cash		$	17,707	$	13,343	$	11,269	$	13,746

The Company considers all ~~highly~~ liquid instruments purchased with a maturity of three months or less to be cash equivalents. ~~The Company invests cash in excess of operating requirements in income-producing short-term investments.~~ Money market funds of ~~$0.4~~less than $0.1 million and ~~$0.2~~$0.4 million were included in cash and cash equivalents ~~in the table above~~ at January ~~27, 2018~~26, 2019 and July 31, ~~2017,~~2018, respectively.

~~The Company is required to maintain restricted~~ Restricted cash ~~on deposit~~included in ~~Brazil as~~other assets represents collateral for pending litigation ~~matters.~~matters in Brazil that are not expected to be resolved within one year from the balance sheet date.

5.	Fair Value of Financial Instruments

The Company’s financial assets or liabilities are measured using inputs from the three levels of the fair value hierarchy. The Company classifies assets and liabilities within the fair value hierarchy based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Company has not elected a fair value option on any assets or liabilities. The three levels of the hierarchy are as follows:

Level 1 Inputs – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Generally, this includes debt and equity securities and derivative contracts that are traded on an active exchange market (e.g., New York Stock Exchange) as well as certain U.S. Treasury and U.S. Government and agency mortgage-backed securities that are highly liquid and are actively traded in over-the-counter markets.

Level 2 Inputs – Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable (e.g., interest rates, yield curves, credit risks, etc.) or can be corroborated by observable market data.

Level 3 Inputs – Valuations based on models where significant inputs are not observable. The unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use.

The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the Company reports the transfer as of the beginning of the reporting period. The Company evaluated the significance of transfers between levels based upon the nature of the financial instrument. There were no transfers in or out of levels 1, 2 or 3, respectively during the six months ended January 27, 2018 or the fiscal year ended July 31, 2017.

The carrying amount of cash, cash equivalents and restricted cash approximated fair value at January ~~27, 2018~~26, 2019 and July 31, ~~2017.~~2018. These assets were classified as level 1 instruments at both dates.

~~Page 9 of 29~~

Investment securities available for sale of $1.5 million at January ~~27, 2018~~26, 2019 and July 31, ~~2017~~2018 primarily included mutual funds invested in U.S. municipal bonds, which the Company may immediately redeem without prior notice. These mutual funds are valued at the net asset value (“NAV”) of shares held by the Company at period end as a practical expedient to estimate fair value. These mutual funds are deemed to be actively traded, are required to publish their daily NAV and are required to transact at that price.

~~Unrealized~~

Page 13 of 37

Prior to August 1, 2018, unrealized gains or losses related to investment securities available for sale were recorded in the consolidated balance sheets and statements of comprehensive income. Subsequent to adoption of ASU 2016-01 effective August 1, 2018 (refer to Note 3 of these condensed consolidated financial statements), unrealized gains or losses related to investment securities available for sale are recorded in ~~accumulated other comprehensive income, net of applicable income taxes in~~ the ~~accompanying condensed consolidated balance sheets and condensed~~ consolidated statements of ~~changes in shareholders' equity.~~operations. The cost basis of securities sold is based on the specific identification method. The Company had unrealized losses of less than $0.1 million recorded in accumulated other comprehensive income during the six months ended January 27, 2018 and January 28, 2017. Reclassification adjustments out of accumulated other comprehensive income are included within gain on sale of assets on the accompanying condensed consolidated statements of operations. The Company did not record any sales of investment securities during the six months ended January ~~27, 2018~~26, 2019 and January ~~28, 2017.~~27, 2018.

Long-term debt consists of bank loans and capitalized equipment leases. Lines of credit consist of borrowings for working capital requirements. Based on the ~~Company's assessment~~relative immateriality of ~~the current financial market and corresponding risks associated with the~~consolidated debt and line of credit borrowings, management believes that the carrying amount of these liabilities approximated fair value at January ~~27, 2018~~26, 2019 and July 31, ~~2017.~~2018. These liabilities were classified as level 2 instruments at both dates.

There were no financial instruments classified as level 3 at January 26, 2019 and January 27, ~~2018 or July 31, 2017.~~2018.

6.	Revenue and Contract Receivables, net

Adoption of ASC Topic 606

The Company adopted ASC Topic 606 effective August 1, 2019. Gross revenue for reporting periods beginning after July 31, 2018 is recognized under ASC Topic 606. Gross revenue for previous reporting periods was recognized in accordance with historic accounting under U.S. GAAP, as summarized in revenue recognition policies included in the Company’s 2018 Annual Report.

The Company adopted ASC Topic 606 using the modified retrospective method. As a practical expedient allowed under ASC Topic 606, the Company applied the new guidance only to contracts that were not completed as of the date of initial application. The Company did not record any cumulative effect adjustment to retained earnings as of August 1, 2019, and did not record any material adjustment to gross revenue for the three or six months ended January 26, 2019 as a result of applying the guidance in ASC Topic 606.

Revenue Recognition under ASC Topic 606

The Company ~~derives~~recognizes substantially all of its revenue from ~~environmental consulting work, principally from~~ the sale of labor ~~hours. The~~hours under environmental consulting ~~work is performed under a mix of fixed price, cost-type, and time and material~~ contracts. ~~Contracts are required from all customers. The Company recognizes revenue as follows:~~

~~Contract Type~~	~~Work Type~~	Revenue ~~Recognition Policy~~

~~Time and materials~~	~~Consulting~~	~~As incurred at contract rates.~~

~~Fixed price~~	~~Consulting~~	~~Percentage of completion, approximating the ratio of either total costs or Level of Effort (LOE) hours incurred to date to total estimated costs or LOE hours.~~

~~Cost-plus~~	~~Consulting~~	~~Costs as incurred plus fees. Fees are recognized as revenue using percentage of completion determined by the percentage of LOE hours incurred to total LOE hours in the respective contracts.~~

~~Revenues~~ reflected in the Company's ~~condensed~~ consolidated statements of operations ~~represent~~represents services rendered for which the Company maintains a primary contractual relationship with its customers. Included in ~~revenues~~revenue are certain services outside the Company's normal operations that the Company has elected to subcontract to other contractors.

In accordance with ASC Topic 606, the Company identifies a contract with a customer, identifies the performance obligations in the contract, determines the transaction price, allocates the transaction price to each performance obligation in the contract and recognizes revenue when (or as) the Company satisfies a performance obligation. The Company recognizes the vast majority of its contractual revenue over time, as services are rendered and performance obligations are satisfied, because of the continuous transfer of control to the customer, and because the Company generally maintains the right to remuneration for efforts already expended under its contracts even if a customer terminates the contract. The Company's contracts with customers generally include payment terms that range from 30-90 days from the billing date.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue recognition. The Company allocates a contract’s transaction price to each distinct performance obligation and recognizes revenue when, or as, the performance obligation is satisfied. Predominantly, the Company’s contracts have a single performance obligation because the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts.

The Company performs its consulting work under a mix of time and materials, fixed price and cost-plus contracts. The Company accounts for time and material contracts over the period of performance, ~~in proportion to the costs of performance,~~ predominately based on labor hours incurred. ~~Revenue earned~~Under these types of contracts, there is no predetermined fee. Instead, the Company negotiates hourly billing rates and charges the clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. Time and materials contracts may contain “not to exceed” provisions that effectively cap the amount of revenue that the Company can bill to the client. In order to record revenue that exceeds the billing cap, the Company must obtain approval from the client for expanded scope or increased pricing.

The Company recognizes revenue under fixed price ~~and cost-plus~~ contracts ~~is recognized~~ using the ~~“percentage-of-completion”~~proportional performance method, ~~wherein~~under which progress is determined based on the ratio of efforts expended to date in proportion to total efforts expected to be expended over the life of a contract. The proportional performance method requires the use of estimates and judgment regarding a project’s expected revenue and the extent of progress towards completion. The Company makes periodic estimates of progress towards project completion by analyzing efforts expended to date, plus an estimate of the amount of efforts to expend that we expect to incur until the completion of the project. Revenue is ~~recognized~~then calculated on a cumulative basis (project-to-date) as the proportion of efforts-expended. The revenue for the current period is calculated as cumulative revenue less project ~~progress occurs.~~revenue already recognized. If an estimate of ~~costs~~efforts expended at completion on any contract indicates that a loss will be incurred, the entire estimated loss is charged to operations in the period the loss becomes evident.

Cost-plus contracts provide for payment of allowable incurred costs, to the extent prescribed in the contract, plus fees that we record as revenue. These contracts establish an estimate of total cost and an invoicing ceiling that the contractor may not exceed without the approval of the client. Revenue earned from cost-plus contracts is recognized over the period of performance.

Substantially all of the Company's ~~cost-type work is~~cost-plus contracts are with federal governmental agencies and, as such, isare subject to audits after contract completion. ~~Under these cost-type contracts, provisions for adjustments to accrued revenue are recognized on a quarterly basis and based on past audit settlement history.~~ Government audits have been completed and final rates have been negotiated through fiscal year 2014. The Company ~~records~~recorded an allowance ~~for project disallowances in other accrued liabilities~~ for potential disallowances resulting from government audits ~~(refer~~of $0.7 million in other accrued liabilities at January 26, 2019 and July 31, 2018. Adjustments to ~~Note 10 of these condensed consolidated financial statements). Allowances~~allowances for project disallowances are recorded as adjustments to revenue when the amounts are estimable. Resolution of these amounts is dependent upon the results of government audits and other formal contract ~~close-out~~closeout procedures.

~~Page 10 of 29~~

~~Change orders can occur when~~Contract modifications are common in the performance the Company’s contracts, and typically result from changes in scope, specifications, design, performance, sites, or period of completion. In most cases, contract modifications are ~~made after project work has begun,~~for services that are not distinct, and, ~~can be initiated by either the Company or its clients. Claims~~therefore, are ~~amounts in excess~~accounted for as part of the agreed contract price which the Company seeks to recover from a client for customer delays and /or errors or unapproved change orders that are in dispute. The Company recognizes costs related to change orders and claims as incurred. Revenues and profit areexisting contract. Revenue is recognized on ~~change orders~~contract modifications when it is probable that the ~~change order~~modification will be approved and the amount can be reasonably estimated. ~~Revenues are recognized only up to the amount of costs incurred on contract claims when realization is probable, estimable and reasonable support from the customer exists.~~

~~The Company expenses all bid and proposal~~Cost of professional services and other ~~pre-contract costs as incurred. Out~~direct operating expenses, which includes employee labor and fringe expenses and out of pocket expenses such as travel, meals and field supplies, ~~and other~~ represent costs ~~billed direct to contracts are included~~incurred in ~~both revenues and cost of professional services.~~ connection with revenue recognized under client contracts. Sales and cost of sales atrecognized by the Company’s South American ~~subsidiaries~~operations exclude value added tax (VAT) assessments by governmental authorities, which the Company collects from its customers and remits to governmental authorities.

The Company expenses all bid and proposal and other pre-contract costs as incurred.

Page 14 of 37

Contract Receivables, net and Contract Assets

Contract receivables, net are summarized in the following table.

	January 26, 2019			July 31, 2018
	(in thousands)
Contract Receivables:
Billed	$	12,578		$	12,905
Unbilled		14,602			13,994
Total contract receivables		27,180			26,899
Allowance for doubtful accounts		(1,234	)		(1,284	)
Contract receivables, net	$	25,946		$	25,615

Billed contract receivables represent amounts billed to clients in accordance with contracted terms but not collected as of the end of the reporting period. Billed contract receivables may include: (i) amounts billed for ~~revenues~~revenue from ~~incurred costs~~efforts expended and fees ~~that have been~~ earned in accordance with contractual terms; and (ii) progress billings in accordance with contractual terms that include revenue not yet earned as of the end of the reporting period. The Company anticipates that substantially all billed contract receivables will be collected over the next twelve months. Billed contract receivables included contractual retainage balances of $0.8 million and $1.4 million at January 26, 2019 and July 31, 2018, respectively.

Unbilled contract receivables, ~~result from: (i) revenues from incurred costs and fees~~ which represent an unconditional right to payment subject only to the passage of time, represent amounts billable to clients in accordance with contracted terms that have not been ~~earned, but are not~~ billed as of ~~period-end;~~the end of the reporting period. Unbilled contract receivables that are not expected to be billed and ~~(ii) differences between year-to-date provisional billings and year-to-date actual contract costs incurred.~~ collected within one year from the balance sheet date are reported in other assets on the condensed consolidated balance sheets.

The Company ~~reduces contract receivables by establishing an allowance for contract adjustments related to revenues that are deemed to be unrealizable, or that may become unrealizable in the future.~~ Management reviews contract receivables and determines allowance amounts based on the adequacy of the Company’s performance under the contract, the status of change orders and claims, historical experience with the client for settling change orders and claims, and economic, geopolitical and cultural considerations for the home country of the client. The Company records such contract adjustments as direct adjustments to revenue in the consolidated statements of operations.

~~The Company also~~ reduces contract receivables by recording an allowance for doubtful accounts to account for the estimated impact of collection issues resulting from a client’s inability or unwillingness to pay valid obligations to the Company. The resulting provision for ~~bad debts~~doubtful accounts is recorded within ~~administrative~~selling, general and ~~indirect operating~~administrative expenses on the condensed consolidated statements of operations.

The Company may record contract assets for the right to receive consideration from customers when that right is conditional based on future performance under a contract. Contract ~~Receivables, Net~~assets are transferred to billed contract receivables when the right to consideration becomes unconditional. The Company did not record any contract assets at January 26, 2019 or July 31, 2018.

At January 26, 2019 and July 31, 2018, management identified $0.3 million and $0.5 million, respectively, of contract receivables, net of related allowance for doubtful accounts, which are not expected to be collected within one year. These receivable balances are included in other assets on the accompanying condensed consolidated balance sheets.

Page 15 of 37

Allowance for Doubtful Accounts

Activity within the allowance for doubtful accounts is summarized in the following table.

	Three Months Ended						Six Months Ended
	January 26, 2019			January 27, 2018 (Restated)			January 26, 2019			January 27, 2018 (Restated)
	(in thousands)

Balance at beginning of period	$	1,300		$	2,033		$	1,284		$	2,044
Provision for doubtful accounts during the period		54			59			70			92
Write-offs and recoveries of allowance recorded in prior periods		(120	)		(190	)		(120	)		(234	)
Balance at end of period	$	1,234		$	1,902		$	1,234		$	1,902

Contract Receivable Concentrations

Contract receivables ~~net~~and the allowance for doubtful accounts are summarized in the following table.

Balance at

January 27,
2018

July 31,
2017

(in thousands)
Contract Receivables:
Billed $ 14,858 $ 16,033
Unbilled 15,464 21,199
30,322 37,232
Allowance for doubtful accounts and contract adjustments (1,957 ) (2,125 )
Contract receivables, net $ 28,365 $ 35,107

Billed contract receivables included contractual retainage balances of $1.2 million and $1.1 million at January 27, 2018 and July 31, 2017, respectively. Management anticipates that the Company will substantially bill and collect the unbilled receivables and retainage balances outstanding at January 27, 2018 within one year.

~~Contract Receivable Concentrations~~

~~Significant concentrations of contract receivables and the allowance for doubtful accounts and contract adjustments are summarized in the following table.~~

~~Page 11 of 29~~

Balance at January 27, 2018 Balance at July 31, 2017

Total
Billed and
Unbilled
Contract
Receivables

Allowance for
Doubtful
Accounts and
Contract
Adjustments

Total
Billed and
Unbilled
Contract
Receivables

Allowance for
Doubtful
Accounts and
Contract
Adjustments

(in thousands)

EEI and its subsidiaries located in the U.S. $ 17,375 $ 595 $ 25,528 $ 797
Subsidiaries located in South America 12,947 1,362 11,704 1,328
Totals $ 30,322 $ 1,957 $ 37,232 $ 2,125

Contract adjustments related to projects in the United States, Canada and South America typically result from cost overruns related to current or recently completed projects, or from recoveries of cost overruns recorded as contract adjustments in prior reporting periods.

	January 26, 2019				July 31, 2018
	Total Billed and Unbilled Contract Receivables		Allowance for Doubtful Accounts		Total Billed and Unbilled Contract Receivables		Allowance for Doubtful Accounts
	(in thousands)

U.S. operations	$	22,171	$	539	$	21,580	$	569
South American operations		5,009		695		5,319		715
Totals	$	27,180	$	1,234	$	26,899	$	1,284

The allowance for doubtful accounts and contract adjustments as a percentage of contract receivables at the Company’s subsidiaries located in South America was 11% at January 27, 2018 and July 31, 2017. During the first six months of fiscal year 2018, unstable local economies continued to adversely impact certain offor the Company’s South American operations represented 14% of related contract receivables at January 26, 2019 compared to 2% for the Company’s U.S. operations. Unstable local economies that adversely impacted certain of our South American clients ~~resulting~~ in ~~increased collection risks~~recent years demonstrated signs of stabilizing during fiscal year 2018. Management continues to monitor trends and ~~the Company incurring project costs that it may not recover for several months. Management is monitoring any adverse trends or~~ events that may adversely impact the realizability of recorded receivables from our South American clients.

~~Allowance for Doubtful Accounts and Contract Adjustments~~

Page 16 of 37

Disaggregation of Revenues

~~Activity~~The following table provides a summary of the Company’s gross revenue, disaggregated by operating segment and contract type.

	Three Months Ended				Six Months Ended
	January 26, 2019		January 27, 2018 (Restated)		January 26, 2019		January 27, 2018 (Restated)

Gross revenue from time and materials contracts:
U.S. operations	$	9,732	$	8,837	$	18,988	$	18,788
South American operations		-		-		-		-
Total gross revenue from time and materials contracts	$	9,732	$	8,837	$	18,988	$	18,788

Gross revenue from fixed price contracts:
U.S. operations	$	5,803	$	2,758	$	9,415	$	7,088
South American operations		1,091		4,905		4,832		10,175
Total gross revenue from fixed price contracts	$	6,894	$	7,663	$	14,247	$	17,263

Gross revenue from cost-plus contracts:
U.S. operations	$	3,626	$	4,789	$	8,768	$	11,343
South American operations		-		-		1		-
Total gross revenue from cost-plus contracts	$	3,626	$	4,789	$	8,769	$	11,343

Gross revenue from all contracts:
U.S. operations	$	19,161	$	16,384	$	37,171	$	37,219
South American operations		1,091		4,905		4,833		10,175
Consolidated gross revenue	$	20,252	$	21,289	$	42,004	$	47,394

Customer Deposits

Customer deposits represent cash advances received from customers to be applied to future services.

Remaining Performance Obligations

The Company’s remaining performance obligations under its current contracts, also known as firm backlog, represent a measure of the total dollar value of work be performed on contracts that are awarded, funded, and in progress. The Company had approximately $66.5 million in remaining performance obligations as of January 26, 2019, of which it expects to recognize $52.6 million (79%) within the ~~allowance for doubtful accounts~~next twelve months.

The projects included in firm backlog are subject to cancellations, scope adjustments, foreign exchange fluctuations and ~~contract adjustments~~project deferrals that may affect the volume or expected timing of revenue recognition. A significant portion of the Company’s revenue is generated from projects awarded under master service agreements with clients. In these instances, only the current unfinished projects are included in our backlog.

7.	Variable Interest Entities and Equity Method Investment

Variable Interest Entities (“VIE”)

The Company’s majority owned subsidiaries are deemed to be VIEs when, on a stand-alone basis, they lack sufficient capital to finance the activities of the VIE. The Company consolidates investments in VIEs if the Company is the primary beneficiary of the VIE. The Company uses a qualitative approach to determine if the Company is the primary beneficiary of the VIE, which considers factors that indicate the Company has significant influence and control over the activities that most significantly impact the VIE’s economic performance. These factors include representation on the investee’s board of directors, management representation, authority to make decisions, substantive participating rights of the minority shareholders and ownership interest.

Page 17 of 37

As of January 26, 2019 and July 31, 2018, the Company consolidated one majority owned subsidiary that was deemed to be VIE. The financial position of this VIE as of January 26, 2019 and July 31, 2018 is summarized in the following table.

Three Months Ended Six Months Ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

(in thousands)
Balance at beginning of period $ 2,127 $ 6,882 $ 2,125 $ 6,792
Net increase (decrease) due to adjustments in the allowance for:
Contract adjustments (1)
(35 ) (4,895 ) (35 ) (4,940 )
Doubtful accounts (2)
(135 ) 60 (133 ) 195
Balance at end of period $ 1,957 $ 2,047 $ 1,957 $ 2,047

~~(1)~~

Increases (decreases) to the allowance for contract adjustments on the condensed consolidated balance sheets are recorded as (decreases) increases to revenue, net on the condensed consolidated statements of operations.

~~(2)~~

Increases (decreases) to the allowance for doubtful accounts on the condensed consolidated balance sheets are recorded as increases (decreases) to administrative and other indirect operating expenses on the condensed consolidated statements of operations.

	January 26, 2019			July 31, 2018
	(in thousands)

Current assets	$	2,525		$	2,359
Noncurrent assets		696			878
Total assets	$	3,221		$	3,237

Current liabilities	$	5,168		$	5,408
Noncurrent liabilities		23			32
Total liabilities		5,191			5,440
Total Ecology and Environment Inc. shareholder’s equity		(864	)		(1,051	)
Noncontrolling interests shareholders’ equity		(1,106	)		(1,152	)
Total shareholders’ equity		(1,970	)		(2,203	)
Total liabilities and shareholders’ equity	$	3,221		$	3,237

~~During~~Total gross revenue of the ~~three~~consolidated VIE was $5.0 million and $4.6 million for the six months ended January ~~28, 2017,~~26, 2019 and January 27, 2018, respectively. With the exception of restricted cash of $0.3 million included in noncurrent assets at January 26, 2019 and July 31, 2018 (refer to Note 4), all assets of the VIE were available for the general operations of the VIE.

Equity Method Investment

VIEs for which the Company ~~wrote-off $4.9 million~~is not the primary beneficiary, and other investee companies over which the Company does not influence or control the activities that most significantly impact the investee company’s economic performance, are not consolidated and are accounted for under the equity method of ~~aged~~accounting. Under the equity method of accounting, an investee company's accounts are not reflected within the Company's consolidated balance sheets and ~~fully reserved contract receivable balances related to a specific project~~statements of operations. The Company's share of the earnings of the investee company is reported as earnings from equity method investment in the ~~Middle East, based~~Company's consolidated statements of operations. The Company's carrying value in an equity method investee is reported as equity method investment on ~~management’s assessment that cash collections were not likely.~~the Company's consolidated balance sheets. The Company's carrying value in an equity method investee is reduced by the Company’s share of dividends declared by an investee company.

If the Company's carrying value in an equity method investee company is reduced to zero, no further losses are recorded in the Company's consolidated financial statements unless the Company guaranteed obligations of the investee company or has committed additional funding. When the investee company subsequently reports income, the Company will not record its share of such income until it equals the amount of its share of losses not previously recognized.

The Company’s equity method investment in GAC had a carrying value of $2.3 million and $2.1 million at January 26, 2019 and July 31, 2018, respectively. The Company’s ownership percentage was 55.1% at both dates. The equity method investment in GAC is included within the Company’s South American operating segment. Activity recorded for the Company’s equity method investment during the six months ended January 26, 2019 and January 27, 2018 is summarized in the following table.

	Six Months Ended
	January 26, 2019		January 27, 2018 (Restated)
	(in thousands)

Equity investment carrying value at beginning of period	$	2,058	$	1,464
GAC net income attributable to EEI		231		239
Equity investment carrying value at end of period	$	2,289	$	1,703

GAC’s financial position as of January 26, 2019 and July 31, 2018 is summarized in the following table.

Page 18 of 37

	January 26, 2019		July 31, 2018
	(in thousands)

Current assets	$	5,017	$	5,713
Noncurrent assets		755		501
Total assets	$	5,772	$	6,214

Current liabilities	$	1,631	$	2,620
Noncurrent liabilities		939		593
Total liabilities		2,570		3,213
Total Ecology and Environment Inc. shareholder’s equity		1,840		1,678
Noncontrolling interests shareholders’ equity		1,362		1,323
Total shareholders’ equity		3,202		3,001
Total liabilities and shareholders’ equity	$	5,772	$	6,214

The results of GAC’s operations for the six months ended January 26, 2019 and January 27, 2018 are summarized in the following table.

	Six Months Ended
	January 26, 2019		January 27, 2018
	(in thousands)

Gross revenue	$	6,147	$	5,267
Direct cost of services and subcontract costs		3,682		3,165
Income from operations		597		611
Net income		419		434
Net income attributable to EEI		231		239

8.	Lines of Credit

Unsecured lines of credit are summarized in the following table.

	Balance at				January 26, 2019		July 31, 2018
	January 27, 2018		July 31, 2017		(in thousands)
	(in thousands)
Outstanding cash draws, recorded as lines of credit on the accompanying condensed consolidated balance sheets	$	435	$	581
Short-term loans issued under lines of credit		---		200
Outstanding letters of credit to support operations		1,908		2,511
Outstanding cash advances					$	222	$	---
Outstanding letters of credit						1,697		1,668
Total amounts used under lines of credit		2,343		3,292		1,919		1,668
Remaining amounts available under lines of credit		37,783		36,529		33,988		36,832
Total approved unsecured lines of credit	$	40,126	$	39,821	$	35,907	$	38,500

The Company’s U.S. operations are supported by two line of credit arrangements:

~~Page 12~~

$19.0 million available line of 29credit at October 27, 2018; no outstanding cash advances as of January 26, 2019 or July 31, 2018; letters of credit of less than $0.1 million were outstanding at January 26, 2019 and July 31, 2018; interest rate on cash advances is based on LIBOR plus 275 basis points; and

$13.5 million available line of credit at January 26. 2019; no outstanding cash advances as of January 26, 2019 or July 31, 2018; letters of credit of less than $0.1 million were outstanding at January 26, 2019 and July 31, 2018, respectively; interest rate on cash advances is based on LIBOR plus 200 basis points.

The Company’s South American operations are supported by two line of credit arrangements:

$2.0 million available line of credit to support operations in Peru; no outstanding cash advances as of January 26, 2019 or July 31, 2018; letters of credit of $1.1 million and $1.0 million were outstanding at January 26, 2019 and July 31, 2018, respectively; interest rate on cash advances is affirmed or negotiated annually; and

$1.4 million available line of credit to support operations in Brazil; $0.2 million of cash advances were outstanding as of January 26. 2019; letters of credit of $0.6 million were outstanding at January 26, 2019 and July 31, 2018; interest rate on cash advances is based on a Brazilian government economic index.

Page 19 of 37

As of January 27, 2018, contractual interest rates for lines of credit ranged from 3.37% to 4.12% for the Company’s U.S. operations and 9.12% to 13.42% for the Company’s South American operations. The Company’s lenders have reaffirmed the lines of credit within the past twelve months.

8.9.	~~Debt and Capital Lease Obligations~~Income Taxes

~~Debt and capital lease obligations are summarized in the following table.~~

Balance at

January 27,
2018

July 31,
2017

(in thousands)

Bank loan (interest rate 2.94% at January 27, 2018) $ 39 $ 328
Capital lease obligations (interest rates ranging from 7.36% to 15.09% at January 27, 2018) 83 120
122 448
Current portion of long-term debt and capital lease obligations (61 ) (382 )
Long-term debt and capital lease obligations $ 61 $ 66

~~The aggregate maturities of long-term debt and capital lease obligations as of January 27, 2018 are summarized in the following table.~~

Twelve Months Ended
January 27,
Amount
(in thousands)

2019 $ 61
2020 37
2021 24
Total $ 122

9.	~~Income Taxes~~

~~The estimated effective tax rate was 93.7% and 67.7% for the six months ended January 27, 2018 and January 28, 2017, respectively.~~ During interim reporting periods, the effective tax rate may be impacted by changes in the mix of forecasted income from the U.S. and foreign jurisdictions where the Company operates, by changes in tax rates within those jurisdictions, or by significant unusual or infrequent items that could change assumptions used in the calculation of the income tax provision.

The estimated effective tax rate decreased to 55.0% for the six months ended January 26, 2019 from 66.5% for the six months ended January 27, 2018. The decrease in the estimated effective tax rate resulted mainly from changes in U.S. corporate income tax regulations included in the Tax Cuts and Jobs Act ~~(refer to Note 3 of these condensed consolidated financial statements) lowered~~enacted in December 2017 (the “Tax Act”), which included:

A reduction in the Company’s ~~statutory federal tax rate from 34% (effective through December 31, 2017) to 21% (effective January 1, 2018). As the Company has a July 31 fiscal year-end, the lower~~U.S. corporate income tax rate ~~will be phased in, resulting in an average statutory federal tax~~to 21% for the six months ended January 26, 2019, compared with a blended rate of ~~approximately~~ 26% for the ~~fiscal year ending July 31, 2018,~~six months ended January 27, 2018.

Certain one-time tax items, including revaluation of deferred tax assets and ~~21% for subsequent fiscal years. Due to~~liabilities and the effect of a new territorial tax system, that increased the Company’s ~~minimal loss from U.S. operations,~~federal income tax expense by a combined $0.4 million for the ~~reduction in the statutory federal tax rate~~six-months ended January 27, 2018. The Company did not ~~have a material impact on the~~record any similar or other unusual adjustments to federal income tax ~~provision related to pre-tax income~~expense during the six months ended January 26, 2019.

10.	Shareholders' Equity

The following tables provide reconciliations of changes in consolidated shareholders’ equity for the three months ended January 26, 2019 and January 27, 2018.

The reduction of the statutory federal tax rate also resulted in revaluation of the Company’s U.S. deferred tax assets and liabilities. Revaluation is based on the tax rates at which the deferred tax assets and liabilities are expected to reverse in the future, which is generally 21%. The Company recorded an estimated net deferred tax expense of $0.3 million during Amounts for the three months ended January 27, 2018 ~~as a result~~have been restated for the GAC Deconsolidation Adjustments and Out of ~~revaluation of deferred tax assets and liabilities.~~Period Adjustments described in Note 2.

	Three Months Ended January 26, 2019
	Class A Common Stock		Class B Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Accumulated Income (Loss)			Treasury Stock			Noncontrolling Interests

Balance at October 27, 2018	$	31	$	13	$	17,595	$	20,848		$	(1,947	)	$	(884	)	$	605

Net income		-		-		-		(309	)		-			-			(1	)
Foreign currency translation adjustment		-		-		-		-			54			-			(7	)
Share-based compensation expense		-		-		34		-			-			-			-
Distributions to noncontrolling interests		-		-		-		-			-			-			(112	)
Purchase of additional noncontrolling interests		-		-		-		-			-			-			(1	)

Balance at January 26, 2019	$	31	$	13	$	17,629	$	20,539		$	(1,893	)	$	(884	)	$	484

	Three Months Ended January 27, 2018
	Class A Common Stock		Class B Common Stock		Capital in Excess of Par Value		Retained Earnings			Accumulated Other Accumulated Income (Loss)			Treasury Stock			Noncontrolling Interests

Balance at October 28, 2017 (Restated)	$	30	$	14	$	17,617	$	23,593		$	(1,806	)	$	(1,037	)	$	992

Net loss		-		-		-		(519	)		-			-			(9	)
Foreign currency translation adjustment		-		-		-		-			13			-			38
Unrealized investment losses, net		-		-		-		-			(13	)		-			-
Share-based compensation expense		-		-		24		-			-			-			-
Distributions to noncontrolling interests		-		-		-		-			-			-			(143	)

Balance at January 27, 2018 (Restated)	$	30	$	14	$	17,641	$	23,074		$	(1,806	)	$	(1,037	)	$	878

The ~~Tax Act includes provisions for a territorial federal tax system that:~~

imposes a U.S. federal tax on historical cumulative earnings of foreign subsidiaries, replacing the previous system of taxing the earnings of foreign subsidiaries only as they were repatriated to the U.S. in the form of dividends;

~~eliminates or reduces the ability to utilize certain foreign tax credits that existed prior to enactment of the Tax Act; and~~

~~provides for a deduction for dividends received from foreign subsidiaries.~~

~~The Company recorded net estimated federal tax expense~~following tables provide reconciliations of $0.1 million related to these territorial tax provisions during the three months ended January 27, 2018, representing the net of a one-time transition tax of $0.3 million on cumulative earnings of foreign subsidiaries, offset by $0.2 million of benefit from outstanding unpaid dividends from a foreign subsidiary. ~~As of January 27, 2018, the Company recorded the $0.3 million transition tax as a non-current income tax liability, which management expects to pay over an eight year period allowed~~changes in ~~the Tax Act.~~

~~Page 13 of 29~~

There are other transitional impacts of the Tax Act, certain of which were estimated to have an immaterial impact on the income tax provision for the three and six months ended January 27, 2018, and certain of which will become effective during future fiscal years.

~~The effective tax rate~~consolidated shareholders’ equity for the six months ended January ~~28, 2017 includes the tax impact of the Company’s portion of dividends declared by its majority owned subsidiary in Chile~~26, 2019 and ~~reversal of a deferred tax asset previously maintained by the Company’s majority owned subsidiary in Peru.~~

~~10.~~

~~Other Accrued Liabilities~~

~~Other accrued liabilities are summarized in the following table.~~

Balance at

January 27,
2018

July 31,
2017

(in thousands)

Allowance for project disallowances $ 687 $ 687
Dividends payable to noncontrolling shareholders of majority-owned subsidiaries 557 517
Other accrued expenses 1,244 1,441
Total other accrued liabilities $ 2,488 $ 2,645

The allowance for project disallowances represents potential disallowances of amounts billed and collected resulting from contract close-outs and government audits. Allowances for project disallowances are recorded when the amounts are estimable, and may be revised during subsequent reporting periods when estimates of settlement amounts become more certain, or when actual settlements are finalized. ~~Activity within the allowance for project disallowances is summarized in the following table.~~

Three Months Ended Six Months Ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

(in thousands)
Balance at beginning of period $ 687 $ 1,173 $ 687 $ 1,819
Reduction of settlement estimate recorded in prior periods --- (462 ) --- (1,108 )
Balance at end of period $ 687 $ 711 $ 687 $ 711

~~Settlements of certain contracts completed during prior fiscal years were finalized during the six months ended January 28, 2017, resulting in no cash received or paid during the period.~~

Dividends payable to noncontrolling shareholders of majority-owned subsidiaries includes dividends declared by a subsidiary in South America during the first half of fiscal year 2017. As of January 28, 2018, management anticipates that these dividends payable will be paid within one year.

~~11.~~

~~Stock Award Plan~~

EEI adopted the 1998 Stock Award Plan effective March 16, 1998. This plan, together with supplemental plans that were subsequently adopted by the Company’s Board of Directors, are referred to as the “Stock Award Plan”. The Stock Award Plan is not a qualified plan under Section 401(a) of the Internal Revenue Code. Under the Stock Award Plan, directors, officers and other key employees of EEI or any of its subsidiaries may be awarded Class A Common Stock as a bonus for services rendered to the Company or its subsidiaries, based upon the fair market value of the common stock at the time of the award. The Stock Award Plan authorizes the Company’s Board of Directors to determine the vesting period and the circumstances under which the awards may be forfeited.

In October 2016, the Company’s Board of Directors adopted the current supplemental plan (the “2016 Stock Award Plan”). The 2016 Stock Award Plan permits awards of up to 200,000 shares of Class A Common Stock for a period of up to five years until its termination in October 2021. As of January 27, 2018, the Company issued a total of 7,502 Class A shares under the 2016 Stock Award Plan, valued at less than $0.1 million, to four directors as a portion of their annual compensation. These shares will fully vest in April 2018 upon expiration of certain restrictions regarding transfer of the shares.

~~Page 14 of 29~~

~~EEI recorded non-cash compensation expense of less than $0.1 million during~~2018. Amounts for the six months ended January 27, 2018 have been restated for the GAC Deconsolidation Adjustments and ~~January 28, 2017.~~Out of Period Adjustments described in Note 2.

~~12.~~

~~Shareholders' Equity~~Page 20 of 37

	Six Months Ended January 26, 2019
	Class A Common Stock		Class B Common Stock			Capital in Excess of Par Value		Retained Earnings			Accumulated Other Accumulated Income (Loss)			Treasury Stock			Noncontrolling Interests

Balance at July 31, 2018	$	30	$	14		$	17,558	$	20,973		$	(1,885	)	$	(907	)	$	664
Cumulative effect of adoption of ASU 2016-01		-		-			-		(5	)		5			-			-
Balance at July 31, 2018 (Adjusted)		30		14			17,558		20,968			(1,880	)		(907	)		664

Net income		-		-			-		(429	)		-			-			4
Foreign currency translation adjustment		-		-			-		-			(13	)		-			(67	)
Conversion of Class B common stock to Class A common stock		1		(1	)		-		-			-			-			-
Issuance of stock under stock award plan		-		-			4		-			-			23			-
Share-based compensation expense		-		-			67		-			-			-			-
Distributions to noncontrolling interests		-		-			-		-			-			-			(116	)
Purchase of additional noncontrolling interests		-		-			-		-			-			-			(1	)

Balance at January 26, 2019	$	31	$	13		$	17,629	$	20,539		$	(1,893	)	$	(884	)	$	484

	Six Months Ended January 27, 2018
	Class A Common Stock		Class B Common Stock		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Accumulated Income (Loss)			Treasury Stock			Noncontrolling Interests

Balance at July 31, 2017 (Restated)	$	30	$	14	$	17,570	$	23,005	$	(1,795	)	$	(1,037	)	$	947

Net income		-		-		-		69		-			-			91
Foreign currency translation adjustment		-		-		-		-		5			-			32
Unrealized investment losses, net		-		-		-		-		(16	)		-			-
Share-based compensation expense		-		-		71		-		-			-			-
Distributions to noncontrolling interests		-		-		-		-		-			-			(192	)

Balance at January 27, 2018 (Restated)	$	30	$	14	$	17,641	$	23,074	$	(1,806	)	$	(1,037	)	$	878

Class A and Class B Common Stock

The relative rights, preferences and limitations of the Company's Class A and Class B Common Stock are summarized as follows: Holders of Class A shares are entitled to elect 25% of the Board of Directors so long as the number of outstanding Class A shares is at least 10% of the combined total number of outstanding Class A and Class B common shares. Holders of Class A common shares have one-tenth the voting power of Class B common shares with respect to most other matters.

In addition, Class A shares are eligible to receive dividends in excess of (and not less than) those paid to holders of Class B shares. Holders of Class B shares have the option to convert at any time, each share of Class B Common Stock into one share of Class A Common Stock. Upon sale or transfer, shares of Class B Common Stock will automatically convert into an equal number of shares of Class A Common Stock, except that sales or transfers of Class B Common Stock to an existing holder of Class B Common Stock or to an immediate family member will not cause such shares to automatically convert into Class A Common Stock.

Restrictive Shareholder Agreement

Messrs. Gerhard J. Neumaier (deceased), Frank B. Silvestro, Ronald L. Frank, and Gerald A. Strobel entered into a Stockholders’ Agreement dated May 12, 1970, as amended January 24, 2011, which governs the sale of certain shares of ~~Ecology and Environment, Inc.~~EEI’s common stock (now classified as Class B Common Stock) owned by them, certain children of those individuals and any such shares subsequently transferred to their spouses and/or children outright or in trust for their benefit upon the demise of a signatory to the Agreement (“Permitted Transferees”). The Agreement provides that prior to accepting a bona fide offer to purchase some or all of their shares of Class B Common Stock governed by the Agreement, that the selling party must first allow the other signatories to the Agreement (not including any Permitted Transferee) the opportunity to acquire on a pro rata basis, with right of over-allotment, all of such shares covered by the offer on the same terms and conditions proposed by the offer.

Cash Dividends

The Company ~~declared and accrued~~paid $0.9 million of cash dividends induring the six months ended January ~~2017, which were paid in February 2017. The Company paid dividends of $0.9 million in August 2017~~26, 2019 and ~~2016~~January 27, 2018 that were declared and accrued in prior periods.

~~The Company declared and paid $0.9 million of cash dividends in February 2018.~~

Page 21 of 37

Stock Repurchase Plan

In August 2010, the Company’s Board of Directors approved a program for repurchase of 200,000 shares of Class A common stock (the “Stock Repurchase Program”). As of ~~January 27,~~April 28, 2018, the Company repurchased 122,918 shares of Class A stock, and 77,082 shares had yet to be repurchased under the Stock Repurchase Program. The Company did not acquire any Class A shares under the Stock Repurchase Program during the ~~six~~three months ended ~~January~~October 27, 2018 or ~~January~~October 28, 2017.

Noncontrolling Interests

The Company discloses noncontrolling interests as a separate component of consolidated shareholders’ equity on the accompanying condensed consolidated balance sheets. Earnings and other comprehensive income (loss) are separately attributed to both the controlling and noncontrolling interests. The Company calculates earnings per share based on net income (loss) attributable to the Company’s controlling interests.

The Company considers acquiring additional interests in majority owned subsidiaries when noncontrolling shareholders express their intent to sell their interests. The Company settles and records acquisitions of noncontrolling interests at amounts that approximate fair value. Purchases of noncontrolling interests are recorded as reductions of shareholders’ equity on the condensed consolidated statements of shareholders’ equity. ~~The~~

As of July 31, 2018, the Company ~~did not acquire additional~~held an 87.88% ownership interest in ~~any of~~Lowham-Walsh Engineering & Environment Services, LLC (“Lowham”). In November 2018, the Company purchased all remaining noncontrolling interest in Lowham for less than $0.1 million, thereby increasing its ~~majority-owned subsidiaries during the six months ended January 27, 2018 or January 28, 2017.~~ownership interest in Lowham to 100%.

~~Page 15 of 29~~

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are summarized in the following table.

	Balance at
	January 27, 2018			July 31, 2017			January 26, 2019			July 31, 2018
	(in thousands)						(in thousands)

Unrealized net foreign currency translation losses	$	(1,945	)	$	(2,033	)	$	(1,893	)	$	(1,880	)
Unrealized net investment (losses) gains on available for sale investments		(1	)		15			---			(5	)
Total accumulated other comprehensive loss	$	(1,946	)	$	(2,018	)	$	(1,893	)	$	(1,885	)

~~13.~~11.

Earnings Per Share

The Company calculates basic and diluted earnings per share by dividing the net income attributable to ~~Ecology and Environment, Inc.~~EEI’s common shareholders by the weighted average number of common shares outstanding for the period. After consideration of all the rights and privileges of the Class A and Class B stockholders summarized in Note ~~12,~~11, in particular the right of the holders of the Class B common stock to elect no less than 75% of the Board of Directors making it highly unlikely that the Company will pay a dividend on Class A common stock in excess of Class B common stock, the Company allocates undistributed earnings between the two classes of stock on a one-to-one basis when computing earnings per share. As a result, basic and fully diluted earnings per Class A and Class B share are equal amounts.

The Company has determined that its unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. These securities shall be included in the computation of earnings per share pursuant to the two-class method. The resulting impact was to include unvested restricted shares in the weighted average shares outstanding calculation.

~~The computation of earnings per share is included in the following table.~~

Page 22 of 37

	Three Months Ended						Six Months Ended						Three Months Ended						Six Months Ended
	January 27, 2018			January 28, 2017			January 27, 2018			January 28, 2017			January 26, 2019			January 27, 2018 (Restated)			January 26, 2019			January 27, 2018 (Restated)
	(in thousands, except share and per share amounts)												(in thousands, except share and per share amounts)

Net (loss) income attributable to Ecology and Environment, Inc.	$	(768	)	$	(318	)	$	(235	)	$	570
Net (loss) income attributable to Ecology and Environment Inc.													$	(309	)	$	(519	)	$	(429	)	$	69
Dividends declared		---			(859	)		---			(859	)		---			---			---			---
Balance at end of period	$	(768	)	$	(1,177	)	$	(235	)	$	(289	)	$	(309	)	$	(519	)	$	(429	)	$	69

Weighted-average common shares outstanding - basic and diluted		4,301,604			4,294,102			4,301,604			4,293,417			4,315,135			4,301,604			4,314,543			4,301,604

Distributed earnings per share - basic and diluted	$	---		$	0.20		$	---		$	0.20		$	---		$	---		$	---		$	---
Undistributed earnings (distributions in excess of earnings) per share - basic and diluted		(0.18	)		(0.27	)		(0.05	)		(0.07	)
Net income per common share - basic and diluted	$	(0.18	)	$	(0.07	)	$	(0.05	)	$	0.13
Undistributed losses per share - basic and diluted														(0.07	)		(0.12	)		(0.10	)		0.02
Net loss per common share - basic and diluted													$	(0.07	)	$	(0.12	)	$	(0.10	)	$	0.02

~~14.~~12.

Segment Reporting

~~The Company reports segment information~~Management generally assesses operating performance and makes strategic decisions based on the geographic ~~location of~~regions in which the Company does business. The Company reports separate operating segment information for its U.S. and South American operations. Gross revenue, net income (loss) attributable to EEI and ~~its direct and indirect subsidiaries (for revenues) and the location of its offices (for long-lived assets). Revenue, net by business segment is summarized in the following table.~~

~~Page 16 of 29~~

Three Months Ended Six Months Ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

(in thousands)

EEI and its subsidiaries located in the U.S. $ 17,050 $ 18,950 $ 36,748 $ 39,265

Subsidiaries located in South America:
Peru 2,690 1,675 5,689 2,737
Chile 3,128 2,096 5,242 4,057
Brazil 2,145 1,931 4,395 3,838
Other 70 74 91 144
8,033 5,776 15,417 10,776

Total revenue, net $ 25,083 $ 24,726 $ 52,165 $ 50,041

~~Long-lived~~total assets by ~~business~~operating segment are summarized in the following ~~table.~~tables.

Balance at

January 27,
2018

July 31,
2017

(in thousands)

EEI and its subsidiaries located in the United States $ 3,095 $ 3,293
Subsidiaries located in South America 1,266 1,135

	Three Months Ended				Six Months Ended
	January 26, 2019		January 27, 2018 (Restated)		January 26, 2019		January 27, 2018 (Restated)
	(in thousands)

Gross revenue:
U.S. operations	$	16,303	$	16,384	$	34,313	$	37,219
South American operations		3,949		4,905		7,691		10,175
Total	$	20,252	$	21,289	$	42,004	$	47,394

Gross revenue from U.S. federal government contracts was $2.9 million and $4.4 million for the three months ended January 26, 2019 and January 27, 2018, respectively, and $6.0 million and $8.0 million for the six months ended January 26, 2019 and January 27, 2018, respectively.

	Three Months Ended						Six Months Ended
	January 26, 2019			January 27, 2018 (Restated)			January 26, 2019			January 27, 2018 (Restated)
	(in thousands)

Net income (loss) attributable to EEI:
U.S. operations (a)	$	(294	)	$	(480	)	$	(402	)	$	(176	)
South American operations (b)		(15	)		(39	)		(27	)		245
Total	$	(309	)	$	(519	)	$	(429	)	$	69

~~15.~~

(a)

Includes depreciation and amortization expense of $0.2 million for the three months ended January 26, 2019 and January 27, 2018, and $0.4 million for the six months ended January 26, 2019 and January 27, 2018.

(b)

Includes depreciation and amortization expense of $0.1 million three months ended January 26, 2019 and January 27, 2018, and $0.2 million and $0.1million for the six months ended January 26, 2019 and January 27, 2018, respectively.

	January 26, 2019		July 31, 2018
	(in thousands)

Total assets:
U.S. operations	$	43,991	$	43,823
South American operations		7,538		9,006
Total	$	51,529	$	52,829

Page 23 of 37

13.	Commitments and Contingencies

Legal Proceedings

From time to time, the Company is a named defendant in legal actions arising out of the normal course of business. The Company is not a party to any pending legal proceeding, the resolution of which the management believes will have a material adverse effect on the Company’s results of operations, financial condition or cash flows, or to any other pending legal proceedings other than ordinary, routine litigation incidental to its business. The Company maintains liability insurance against risks arising out of the normal course of business.

On February 4, 2011, the Chico Mendes Institute of Biodiversity Conservation of Brazil (the “Institute”) issued a Notice of Infraction to ecology and environment do ~~Brasil~~brasil Ltda. ("(“E&E ~~Brasil"~~Brazil”), a majority-owned consolidated subsidiary of EEI. The Notice of Infraction concerned the taking and collecting of wild animal specimens without authorization by the competent authority and imposed a fine of ~~520,000~~approximately 0.5 million Reais against E&E ~~Brasil.~~Brazil. The Institute also filed Notices of Infraction against four employees of E&E ~~Brasil~~Brazil alleging the same claims and imposed fines against those individuals that, in the aggregate, were equal to the fine imposed against E&E ~~Brasil.~~Brazil. No claim has been made against EEI.

E&E ~~Brasil~~Brazil has filed court claims appealing the administrative decisions of the Institute for E ~~& E Brasil’s~~&E Brazil’s employees that: (a) deny the jurisdiction of the Institute; (b) state that the Notice of Infraction is constitutionally vague; and (c) affirmatively state that E&E ~~Brasil~~Brazil had obtained the necessary permits for the surveys and collections of specimens under applicable Brazilian regulations and that the protected conservation area is not clearly marked to show its boundaries. The claim of violations against one of the four employees was dismissed. The remaining three employees have fines assessed against them that are being appealed through the federal courts. Violations against E&E ~~Brasil~~Brazil are pending agency determination. At January ~~27, 2018,~~26, 2019, the Company ~~maintained~~recorded a reserve of approximately $0.4 million in other accrued liabilities related to these claims.

~~Contract Termination Provisions~~

14.	Subsequent Events

~~Certain contracts contain termination provisions under which the customer may, without penalty, terminate the contracts upon written notice to the Company.~~ Staff Reduction Programs

In ~~the event of termination,~~December 2018, the Company ~~would be paid only termination costs~~began to notify affected employees of a voluntary retirement program. In February 2019, the Company began to notify affected employees of an involuntary separation program. These programs (collectively, the “Staff Reduction Programs”) are being implemented in ~~accordance~~connection with a corporate restructuring plan. Company management anticipates that the ~~particular contract. Generally, termination costs include unpaid costs incurred~~combined effect of the Staff Reduction Programs and other expense reduction initiatives will result in annual pre-tax cost savings of greater than $6.0 million. These activities are expected to ~~date, earned fees~~result in pre-tax charges and ~~any additional costs directly allocable to the termination. The Company did not experience early termination~~cash expenditures of ~~any material contracts during the six months ended January 27, 2018 or~~approximately $1.0 million during the fiscal year ~~ended~~ending July 31, ~~2017.~~2019, consisting primarily of employee severance and termination benefits. These initiatives were substantially completed by April 30, 2019 and are expected to be completed by July 31, 2019.

~~Page 17~~

Sale of 29Majority Owned Subsidiary

In February 2019, the Company consummated the sale of its majority interest in a consolidated subsidiary located in Ecuador. The cash proceeds and loss from the sale to noncontrolling shareholders, both recorded in February 2019, were less than $0.1 million and $0.1 million, respectively. The sold subsidiary did not represent a material portion of the Company’s consolidated assets, shareholders’ equity, gross revenue or net income attributable to EEI for any previously reported period, and management does not expect that the sale of this subsidiary will have a material impact on the Company’s results of operations, financial position or cash flows for future reporting periods.

Page 24 of 37

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

References in this Quarterly Report on Form 10-Q (the “Quarterly Report”) to “EEI” refer to Ecology and Environment Inc., a New York corporation. References to “the Company,” “we,” “us,” “our,” or similar terms refer to EEI together with its consolidated subsidiaries.

Executive Overview

The Company reported a consolidated loss of $0.18 per share for the three months ended January 27, 2018, $0.11 lower than the loss of $0.07 per share reported for the same quarter last year. A consolidated loss of $0.05 per share for the six months ended January 27, 2018 was $0.18 lower than income of $0.13 per share reported for the prior year. Lower net income before income tax provision during the second quarterManagement generally assesses operating performance and ~~first half of fiscal year 2018 primarily resulted from lower revenues from our U.S. operations, which were partially offset by significant improvement in South American revenues and net income.~~

On December 22, 2017, the U.S. government enacted comprehensive tax legislation referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act significantly revised U.S. corporate income tax regulations including, among other things, lowering U.S. corporate income tax rates and implementing a territorial tax system. Enactment of the Tax Act resulted in net adjustments that increased our income tax provision by approximately $0.4 million, and effectively reduced earnings by $0.10 per share during the current quarter. Specific impacts of the Tax Act are summarized below in the income taxes commentary.

~~We manage our operations through distinct reporting segments that are~~makes strategic decisions based on the geographic ~~location of~~regions in which we do business. We report separate operating segment information for our ~~parent company~~United States (“U.S.”) and ~~subsidiary operations. The following tables include~~ ~~selected financial information by business segment for the three and six months ended January 27, 2018 and January 28, 2017.~~ ~~Refer to “Results of Operations” below for further commentary regarding the Company’s revenues and expenses for the three and six months ended January 27, 2018.~~

Three Months Ended

January 27,
2018

January 28,
2017

$
Change

%
Change

($ in thousands)

EEI and subsidiaries located in the United States:
Revenue, net $ 17,050 $ 18,950 $ (1,900 ) (10 )%
Revenue, net less subcontract costs (1) 13,634 15,240 (1,606 ) (11 )%
Direct operating expenses (2) 6,395 6,939 (544 ) (8 )%
Indirect operating expenses (3) 7,745 7,782 (37 ) --- %
(Loss) income before income tax provision (782 ) 236 (1,018 ) (431 )%
Net (loss) attributable to EEI (950 ) (5 ) (945 ) --- (4)

Subsidiaries located in South America:
Revenue, net $ 8,033 $ 5,776 $ 2,257 39 %
Revenue, net less subcontract costs (1) 5,680 4,139 1,541 37 %
Direct operating expenses (2) 2,683 2,091 592 28 %
Indirect operating expenses (3) 2,483 2,040 443 22 %
Income (loss) before income tax provision 496 (71 ) 567 --- (4)
Net income (loss) attributable to EEI 182 (313 ) 495 --- (4)

Consolidated totals:
Revenue, net $ 25,083 $ 24,726 $ 357 1 %
Revenue, net less subcontract costs (1) 19,314 19,379 (65 ) --- %
Direct operating expenses (2) 9,078 9,030 48 1 %
Indirect operating expenses (3) 10,228 9,822 406 4 %
(Loss) income before income tax provision (286 ) 165 (451 ) (273 )%
Net (loss) attributable to EEI (768 ) (318 ) (450 ) --- (4)

~~(1)~~

~~Revenue, net less subcontract costs, which is a key operating metric for our company, represents revenue, net less subcontract costs from the condensed consolidated statements of operations.~~

~~(2)~~

~~Direct operating expenses consist of cost of professional services and other direct operating expenses from the condensed consolidated statements of operations.~~

~~(3)~~

~~Indirect operating expenses consist of administrative and indirect operating expenses and marketing and related costs from the condensed consolidated statements of operations.~~

~~(4)~~

~~Percent change is not relevant because the prior year amount is negative.~~

~~Page 18 of 29~~

Six Months Ended

January 27,
2018

January 28,
2017

$
Change

%
Change

($ in thousands)

EEI and subsidiaries located in the United States:
Revenue, net $ 36,748 $ 39,265 $ (2,517 ) (6 )%
Revenue, net less subcontract costs (1) 29,767 32,917 (3,150 ) (10 )%
Direct operating expenses (2) 13,413 14,345 (932 ) (6 )%
Indirect operating expenses (3) 16,056 16,010 46 --- %
(Loss) income before income tax provision (275 ) 1,891 (2,166 ) (115 )%
Net (loss) income attributable to EEI (719 ) 1,101 (1,820 ) (165 )%

Subsidiaries located in South America:
Revenue, net $ 15,417 $ 10,776 $ 4,641 43 %
Revenue, net less subcontract costs (1) 10,900 7,766 3,134 40 %
Direct operating expenses (2) 5,146 4,095 1,051 26 %
Indirect operating expenses (3) 4,681 4,059 622 15 %
Income (loss) before income tax provision 1,081 (307 ) 1,388 --- (4)
Net income (loss) attributable to EEI 484 (531 ) 1,015 --- (4)

Consolidated totals:
Revenue, net $ 52,165 $ 50,041 $ 2,124 4 %
Revenue, net less subcontract costs (1) 40,667 40,683 (16 ) --- %
Direct operating expenses (2) 18,559 18,440 119 1 %
Indirect operating expenses (3) 20,737 20,069 668 3 %
Income before income tax provision 806 1,584 (778 ) (49 )%
Net income attributable to EEI (235 ) 570 (805 ) (141 )%

~~(1)~~

~~Revenue, net less subcontract costs, which is a key operating metric for our company, represents revenue, net less subcontract costs from the condensed consolidated statements of operations.~~

~~(2)~~

~~Direct operating expenses consist of cost of professional services and other direct operating expenses from the condensed consolidated statements of operations.~~

~~(3)~~

~~Indirect operating expenses consist of administrative and indirect operating expenses and marketing and related costs from the condensed consolidated statements of operations.~~

~~(4)~~

~~Percent change is not relevant because the prior year amount is negative.~~

~~Liquidity and Capital Resources~~

Cash, cash equivalents and restricted cash increased $4.3 million during the first six months of fiscal year 2018. Excluding payment of $0.9 million of dividends to shareholders that was approved on a discretionary basis by the Company’s Board of Directors, cash generated from operations exceeded cash required to fund investing and financing activities by $5.2 million during the period.

We maintain $40.1 million of unsecured lines of credit available for working capital and letters of credit as of January 27, 2018 at contractual interest rates ranging from 3.37% to 4.12% in the U.S. and 9.12% to 13.42% in South America. Cash advances of $0.4 million and letters of credit of $1.9 million were outstanding under our lines of credit as of January 27, 2018. Our lenders have reaffirmed the lines of credit within the past twelve months.

We believe that available cash balances, anticipated cash flows and our available lines of credit will be sufficient to cover working capital and operating requirements of our U.S. operations during the next twelve months and the foreseeable future.

~~Historically, our foreign subsidiaries have generated adequate cash flow to fund their operations. During fiscal years 2016 and 2017, our~~ South American operations had been adversely affected by unstable economic conditions. Although there are indications of economic recovery in certain countries, the total scope and duration of the economic downturn, and the ultimate impact that it will have on our Brazilian, Peruvian and Chilean operations, are uncertain. In the event that theseoperations. Our active subsidiaries ~~are unable to generate adequate cash flow to fund their operations, additional funding from EEI or lending institutions will be considered.~~

We intend to reinvest net cash generated from undistributed foreign earnings into operations and business expansion opportunities outside the U.S. Excess cash accumulated by any foreign subsidiary, beyond that necessary to fund operations or business expansion, may be repatriated to the U.S. at the discretion of the Boards of Directors of the respective entities. The Company repatriated $0.4 million of dividends from foreign subsidiaries, net of local taxes, during the six months ended January ~~27, 2018.~~

During fiscal year 2017, one of the Company’s majority owned subsidiaries in South America declared a total of $1.5 million of dividends to its shareholders, of which $0.2 million was paid to minority shareholders and $0.2 million was repatriated to the U.S., net of local taxes, as of January 27, 2018. ~~As of January 27, 2018, management anticipates that these dividends payable will be paid within one year.~~

~~Page 19 of 29~~

The Tax Act resulted in a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries of approximately $0.3 million which will be paid, without incurring interest, over a period of up to eight years.

~~Contract Receivable Concentration Risk~~

~~Significant concentrations of contract receivables and the allowance for doubtful accounts and contract adjustments~~26, 2019 are ~~summarized~~listed in the following table.

The allowance for doubtful accounts and contract adjustments as a percentage of contract receivables at the Company’s subsidiaries located in South America was 11% at January 27, 2018 and July 31, 2017. During the first quarter of fiscal year 2018, unstable local economies continued to adversely impact certain of our South American clients, resulting in increased collection risks and the Company incurring project costs that it may not recover for several months. Although there are indications of economic recovery in certain countries, management is monitoring any adverse trends or events that may impact the realizability of recorded receivables from our South American clients.

~~Contract Backlog~~

At any point in time, we have a firm backlog of uncompleted projects that are expected to provide future revenue over a period of 1 to 2 years. These projects include a substantial amount of work to be performed under contracts that contain termination provisions that may be exercised without penalty at any time by our clients upon written notice to us. Changes in economic or market conditions or other extraordinary events, such as natural disasters, could lead to delays in our ability to recognize revenue, or to us not realizing all of the potential revenue under these contracts. The likelihood of obtaining the full value under these contracts cannot be determined at this time.

~~Our firm backlog of uncompleted projects is summarized by business segment in the following table.~~

Amount as of

January 27,
2018

July 31,
2017

January 28,
2017

(in thousands)

Total firm backlog of uncompleted contracts:
EEI and its subsidiaries located in the United States $ 66,613 $ 71,642 $ 62,023
Subsidiaries located in South America 21,123 20,744 21,939
Consolidated totals $ 87,736 $ 92,386 $ 83,962

Anticipated completion of firm backlog in next twelve months:
EEI and its subsidiaries located in the United States $ 35,888 $ 38,814 $ 37,525
Subsidiaries located in South America 14,782 14,660 15,663
Consolidated totals $ 50,670 $ 53,474 $ 53,188

~~Page 20 of 29~~

~~Results of Operations~~

~~Revenue, net~~

Substantially all of the Company's revenue is derived from environmental consulting work, which is principally derived from the sale of labor hours. Revenues reflected in the Company's condensed consolidated statements of operations represent services rendered for which the Company maintains a primary contractual relationship with its customers. Included in revenues are certain services that the Company has elected to subcontract to other contractors. Sales and cost of sales at our South American subsidiaries exclude tax assessments by governmental authorities, which are collected from clients and then remitted to governmental authorities.

~~The consulting work is performed under a mix of time and materials, fixed price and cost-plus, and contracts. Contracts are required from all customers. Revenue is recognized as follows:~~

~~Contract Type~~Name	~~Work Type~~ Percentage of Subsidiary Capital Stock Owned by the Company	~~Revenue Recognition Policy~~ Operating Segment

~~Time and materials~~Consolidated Subsidiaries:	~~Consulting~~	~~As incurred at contract rates.~~
Ecology & Environment Engineering, Inc.	100.00%	United States
Walsh Environmental, LLC	100.00%	United States
Gustavson Associates, LLC	83.60%	United States
Walsh Peru, S.A. Ingenieros y Cientificos Consultores (“Walsh Peru”)	74.78%	South America
ecology and environment do brasil Ltda. (“E&E Brazil”)	72.00%	South America
Servicios Ambientales Walsh, S.A. (“Walsh Ecuador”) (a)	51.00%	South America

~~Fixed price~~	~~Consulting~~	~~Percentage of completion, approximating the ratio of either total costs or Level of Effort (LOE) hours incurred to date to total estimated costs or LOE hours.~~
Majority-Owned Equity Investment:
~~Cost-plus~~ Gestión Ambiental Consultores S.A. (“GAC”) (b)	~~Consulting~~55.10%	~~Costs as incurred plus fees. Fees are recognized as revenue using percentage of completion determined by the percentage of LOE hours incurred to total LOE hours in the respective contracts.~~South America

~~Revenue,~~

(a)

The Company’s investment in Walsh Ecuador was sold to minority shareholders effective February 1, 2019

(b)

EEI’s equity investment in GAC is reported as an “equity method investment” on the consolidated balance sheets, and as a component of the South American operating segment. EEI’s share of GAC’s earnings is reported as “income from equity method investment” on the consolidated statements of operations.

The following table includes selected financial information by operating segment for the three months ended October 27, 2018 and October 28, 2017 (the first quarters of fiscal years 2019 and 2018, respectively). Refer to “Results of Operations” below for additional commentary regarding the Company’s revenues and expenses for these reporting periods.

	Three Months Ended
	January 26, 2019		January 27, 2018 (Restated)		$ Change			% Change
	($ in thousands)
U.S. operations:
Gross revenue	$	16,303	$	16,384	$	(81	)		---	%
Gross revenue less subcontract costs		13,400		13,577		(177	)		(1	)%
Cost of professional services and other direct operating expenses		6,145		6,396		(251	)		(4	)%
Gross margin		7,255		7,181		74			1	%
Selling, general and administrative expenses		7,835		7,745		89			1	%

South American operations:
Gross revenue	$	3,949	$	4,905	$	(956	)		(19	)%
Gross revenue less subcontract costs		3,233		3,283		(50	)		(2	)%
Cost of professional services and other direct operating expenses		1,629		1,570		59			4	%
Gross margin		1,604		1,713		(109	)		(6	)%
Selling, general and administrative expenses		1,617		1,738		(121	)		(7	)%
Income from equity method investment		171		221		(50	)		(23	)%

Consolidated totals:									��
Gross revenue	$	20,252	$	21,289	$	(1,037	)		(5	)%
Gross revenue less subcontract costs		16,633		16,860		(227	)		(1	)%
Cost of professional services and other direct operating expenses		7,774		7,966		(192	)		(2	)%
Gross margin		8,859		8,894		(35	)		---	%
Selling, general and administrative expenses		9,452		9,483		(32	)		---	%
Income from equity method investment		171		221		(50	)		(23	)%

Page 25 of 37

	Six Months Ended
	January 26, 2019		January 27, 2018 (Restated)		$ Change			% Change
	($ in thousands)

U.S. operations:
Gross revenue	$	34,313	$	37,219	$	(2,906	)		(8	)%
Gross revenue less subcontract costs		27,599		29,767		(2,168	)		(7	)%
Cost of professional services and other direct operating expenses		12,641		13,413		(772	)		(6	)%
Gross margin		14,958		16,354		(1,396	)		(9	)%
Selling, general and administrative expenses		15,673		16,057		(384	)		(2	)%

South American operations:
Gross revenue	$	7,691	$	10,175	$	(2,484	)		(24	)%
Gross revenue less subcontract costs		6,212		6,849		(637	)		(9	)%
Cost of professional services and other direct operating expenses		3,267		3,171		96			3	%
Gross margin		2,945		3,678		(733	)		(20	)%
Selling, general and administrative expenses		2,979		3,208		(229	)		(7	)%
Income from equity method investment		231		239		(8	)		(3	)%

Consolidated totals:
Gross revenue	$	42,004	$	47,394	$	(5,390	)		(11	)%
Gross revenue less subcontract costs		33,811		36,616		(2,805	)		(8	)%
Cost of professional services and other direct operating expenses		15,908		16,584		(676	)		(4	)%
Gross margin		17,903		20,032		(2,129	)		(11	)%
Selling, general and administrative expenses		18,652		19,265		(613	)		(3	)%
Income from equity method investment		231		239		(8	)		(3	)%

We reported a consolidated net ~~associated~~loss of $0.3 million ($0.07 per share) for the quarter ended January 26, 2019, compared with ~~these contract types are~~a consolidated net loss of $0.5 million ($0.12 per share) for the second quarter of the prior fiscal year. For the six months ended January 26, 2019 and January 27, 2018, we reported a consolidated net loss of $0.4 million ($0.10 per share) and consolidated net income of $0.1 million, respectively. Net (loss) income by operating segment is summarized in the following table.

Three Months Ended Six Months Ended

January 27,
2018

January 28,
2017

January 27,
2018

January 28,
2017

(in thousands)
Time and materials $ 9,337 $ 10,587 $ 19,195 $ 22,646
Fixed price 11,013 10,005 21,810 19,308
Cost-plus 4,733 4,134 11,160 8,087
Total revenue, net $ 25,083 $ 24,726 $ 52,165 $ 50,041

	Three Months Ended						Six Months Ended
	January 26, 2019			January 27, 2018 (Restated)			January 26, 2019			January 27, 2018 (Restated)
	(in thousands)

Net (loss) income attributable to EEI:
U.S. operations (a)	$	(294	)	$	(480	)	$	(402	)	$	(176	)
South American operations (b)		(15	)		(39	)		(27	)		245
Total	$	(309	)	$	(519	)	$	(429	)	$	69

~~Revenue, net and~~Gross margin represents gross revenue less subcontract costs and cost of professional services and other direct operating expenses. The Company generally earns a higher gross margin from its U.S. operations than gross margin earned from its South American operations. As a percentage of gross revenue, the consolidated gross margin percentage of 43.7% and 42.6% for the quarter and six months ended January 26, 2019, respectively, increased slightly from the same periods of the prior fiscal year, due mainly to a higher percentage of consolidated gross revenue being generated from U.S. operations.

Results of Operations

Gross Revenue and Gross Revenue less Subcontract Costs

Gross revenue by ~~business entity, are~~contract type is summarized in the following ~~tables.~~table.

~~Page 21 of 29~~

Page 26 of 37

Three Months Ended

January 27,
2018

January 28,
2017

$
Change

%
Change

($ in thousands)
Revenue, net by business segment:

EEI and subsidiaries located in the U.S. $ 17,050 $ 18,950 $ (1,900 ) (10 )%

Subsidiaries located in South America:
Peru 2,690 1,675 1,015 61 %
Chile 3,128 2,096 1,032 49 %
Brazil 2,145 1,931 214 11 %
Other 70 74 (4 ) --- (1)
8,033 5,776 2,257 39 %

Total revenue, net $ 25,083 $ 24,726 $ 357 1 %

	Three Months Ended				Six Months Ended
	January 26, 2019		January 27, 2018 (Restated)		January 26, 2019		January 27, 2018 (Restated)
	(in thousands)

Time and materials	$	9,629	$	8,833	$	18,897	$	18,765
Fixed price		6,997		7,667		14,339		17,286
Cost-plus		3,626		4,789		8,768		11,343
Consolidated gross revenue	$	20,252	$	21,289	$	42,004	$	47,394

Revenue, net less subcontract costs, by business segment:

EEI and subsidiaries located in the U.S. $ 13,634 $ 15,240 $ (1,606 ) (11 )%

Subsidiaries located in South America:
Peru 1,506 1,008 498 49 %
Chile 2,397 1,473 924 63 %
Brazil 1,747 1,593 154 10 %
Other 30 65 (35 ) --- (1)
5,680 4,139 1,541 37 %

Total revenue, net less subcontract costs $ 19,314 $ 19,379 $ (65 ) --- %

Six Months Ended

January 27,
2018

January 28,
2017

$
Change

%
Change

($ in thousands)
Revenue, net by business segment:

EEI and subsidiaries located in the U.S. $ 36,748 $ 39,265 $ (2,517 ) (6 )%

Subsidiaries located in South America:
Peru 5,689 2,737 2,952 108 %
Chile 5,242 4,057 1,185 29 %
Brazil 4,395 3,838 557 15 %
Other 91 144 (53 ) --- (1)
15,417 10,776 4,641 43 %

Total revenue, net $ 52,165 $ 50,041 $ 2,124 4 %

Gross revenue less subcontract costs is a key metric utilized by management for operational monitoring and decision-making. References to “revenue” in the following commentary refer to gross revenue less subcontract costs, which is summarized by operating segment in the following tables.

Revenue, net less subcontract costs, by business segment:

EEI and subsidiaries located in the U.S. $ 29,767 $ 32,917 $ (3,150 ) (10 )%

Subsidiaries located in South America:
Peru 3,254 1,651 1,603 97 %
Chile 4,051 3,017 1,034 34 %
Brazil 3,552 2,972 580 20 %
Other 43 126 (83 ) --- (1)
10,900 7,766 3,134 40 %

Total revenue, net less subcontract costs $ 40,667 $ 40,683 $ (16 ) --- %

	Three Months Ended
Operating Segment	January 26, 2019			January 27, 2018 (Restated)		$ Change			% Change
	($ in thousands)

U.S. operations	$	13,400		$	13,577	$	(177	)		(1	)%

South American operations:
Chile		1,082			1,506		(424	)		(28	)%
Brazil		2,197			1,747		450			26	%
Other		(46	)		30		(76	)		---	(a)
Total South American operations		3,233			3,283		(50	)		(2	)%

Consolidated gross revenue less subcontract costs	$	16,633		$	16,860	$	(227	)		(1	)%

	Six Months Ended
Operating Segment	January 26, 2019			January 27, 2018 (Restated)		$ Change			% Change
	($ in thousands)

U.S. operations	$	27,599		$	29,767	$	(2,168	)		(7	)%

South American operations:
Peru		1,995			3,254		(1,259	)		(39	)%
Brazil		4,225			3,552		673			19	%
Other		(8	)		43		(51	)		---	(a)
Total South American operations		6,212			6,849		(637	)		(9	)%

Consolidated gross revenue less subcontract costs	$	33,811		$	36,616	$	(2,805	)		(8	)%

~~(1)~~(a)

Percent change is not relevant because of the relatively immaterial amounts for all periods presented.

Revenue, net represents gross revenue recognized for the services provided to our clients, adjusted for the impacts of cost overruns or settlements recorded upon completion and close out of a project. Revenue, net less subcontract costs is a key metric utilized by management for operational monitoring and decision-making. References to “revenues” in the following commentary refer to revenue, net less subcontract costs from the table above.

Consolidated revenues decreased slightly during the current quarter and the first half of fiscal year 2018, as lower revenues from U.S. operations were offset by significantly higher revenues from subsidiary operations in South America.

~~Page 22 of 29~~

~~EEI and Subsidiaries Located in the~~ U.S. Operations

~~The Company records an allowance for project disallowances in other accrued liabilities for potential disallowances resulting from government audits.~~ During the quarter and six months ended January 28, 2017, as a result of final settlements of projects completed in prior years, the Company reduced its allowance for project disallowances by $0.5 million and $1.1 million, respectively, which was recorded as an addition to revenue, net on the consolidated statement of operations. We did not record any similar adjustments during the quarter or six months ended January 27, 2018.

~~Excluding the above settlement adjustments, revenues~~Revenue from U.S. operations decreased 8%1% during the ~~current~~second quarter and decreased 4%7% during ~~the~~ first ~~half~~six months of fiscal year 2019 compared with the same periods of the prior fiscal year.

	Class A Common Stock Shares		Class A Common Stock Amount		Class B Common Stock Shares			Class B Common Stock Amount		Capital in Excess of Par Value			Retained Earnings			Accumulat ed Other Comprehe nsive Income (Loss)			Treasury Stock Shares			Treasury Stock Amount			Noncontrol ling Interest

Balance at July 31, 2016 (audited)		3,035,778	$	30		1,357,947		$	14	$	16,606		$	22,237		$	(2,143	)		104,073		$	(1,172	)	$	2,333

Net income (loss)		-		-		-			-		-			3,015			-			-			-			(62	)
Foreign currency translation adjustment		-		-		-			-		-			-			143			-			-			87
Cash dividends declared ($0.40 per share)		-		-		-			-		-			(1,719	)		-			-			-			-
Unrealized investment losses, net		-		-		-			-		-			-			(18	)		-			-			-
Issuance of stock under stock award plan		-		-		-			-		4			-			-			(11,952	)		135			-
Tax impact of share based compensation		-		-		-			-		(6	)		-			-			-			-			-
Tax impact of noncontrolling interests		-		-		-			-		-			(24	)		-			-			-			24
Distributions to noncontrolling interests		-		-		-			-		-			-			-			-			-			(680	)
Adjustment to deferred income taxes related to acquisition of noncontrolling interests in prior years		-		-		-			-		1,004			-			-			-			-			-

Balance at July 31, 2017 (audited)		3,035,778	$	30		1,357,947		$	14	$	17,608		$	23,509		$	(2,018	)		92,121		$	(1,037	)	$	1,702

Net (loss) income		-		-		-			-		-			(235	)		-			-			-			286
Foreign currency translation adjustment		-		-		-			-		-			-			88			-			-			107
Unrealized investment losses, net		-		-		-			-		-			-			(16	)		-			-			-
Conversion of Class B common stock to Class A common stock		371		-		(371	)		-		-			-			-			-			-			-
Distributions to noncontrolling interests		-		-		-			-		-			-			-			-			-			(192	)

Balance at January 27, 2018 (unaudited)		3,036,149	$	30		1,357,576		$	14	$	17,608		$	23,274		$	(1,946	)		92,121		$	(1,037	)	$	1,903

	Balance at January 27, 2018					Balance at July 31, 2017
		Total Billed and Unbilled Contract Receivables		Allowance for Doubtful Accounts and Contract Adjustments		Total Billed and Unbilled Contract Receivables		Allowance for Doubtful Accounts and Contract Adjustments
	(in thousands)

EEI and its subsidiaries located in the U.S.		$	17,375	$	595	$	25,528	$	797
Subsidiaries located in South America			12,947		1,362		11,704		1,328
Totals		$	30,322	$	1,957	$	37,232	$	2,125

Twelve Months Ended January 27,	Amount
	(in thousands)

2019	$	61
2020		37
2021		24
Total	$	122

	Amount as of
	January 27, 2018		July 31, 2017		January 28, 2017
	(in thousands)

Total firm backlog of uncompleted contracts:
EEI and its subsidiaries located in the United States	$	66,613	$	71,642	$	62,023
Subsidiaries located in South America		21,123		20,744		21,939
Consolidated totals	$	87,736	$	92,386	$	83,962

Anticipated completion of firm backlog in next twelve months:
EEI and its subsidiaries located in the United States	$	35,888	$	38,814	$	37,525
Subsidiaries located in South America		14,782		14,660		15,663
Consolidated totals	$	50,670	$	53,474	$	53,188

Revenue, net less subcontract costs, by business segment:
EEI and subsidiaries located in the U.S.	$	13,634	$	15,240	$	(1,606	)	(11	)%

Subsidiaries located in South America:
Peru		1,506		1,008		498		49	%
Chile		2,397		1,473		924		63	%
Brazil		1,747		1,593		154		10	%
Other		30		65		(35	)	---	(1)
		5,680		4,139		1,541		37	%

Total revenue, net less subcontract costs	$	19,314	$	19,379	$	(65	)	---	%

Fiscal Year 2018 Reporting Month	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs

August ~~2017~~2018	---	---	---	77,082
September ~~2017~~2018	---	---	---	77,082
October ~~2017~~2018	---	---	---	77,082
November ~~2017~~2018	---	---	---	77,082
December ~~2017~~2018	---	---	---	77,082
January ~~2018~~2019	---	---	---	77,082

	(a)	31.1 Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		31.2 Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
		32.1 Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
		32.2 Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

	(b)	The Company filed a Current Report on Form 8-K on ~~October 18, 2017~~September 19, 2018 to announce ~~Mr. H. John Mye III’s~~the appointment of the Company’s Chairman of the Board, Marshall A. Heinberg, as Interim Executive Chairman, and the appointment of Todd Musterait as President of United States Operations.

	(c)	The Company filed a Current Report on Form 8-K on November 2, 2018 to announce compensation arrangements for Marshall A. Heinberg, Interim Executive Chairman, and Todd Musterait, President of United States Operations.

	(d)	The Company filed a Current Report on Form 8-K on November 16, 2018 to announce that the Company received, as expected, a formal notification from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) stating that the Company is not in compliance with the requirements for continued listing under Nasdaq Listing Rule 5250(c)(1) because it did not file its 2018 Annual Report on a timely basis.

		Ecology and Environment Inc.

Date: ~~March 13, 2018~~	May 31, 2019	By:	/s/ ~~H. John Mye III~~Peter F. Sorci
		~~H. John Mye III~~	Peter F. Sorci
			Acting Chief Financial Officer ~~and Treasurer~~