UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. -2054920549

FORM 10-Q

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended April 28, 201827, 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'sRegistrant’s telephone number, including area code)

Not Applicable
   (Former(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 shareEEINasdaq 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 May 31, 2018, 3,025,2262019, 3,114,400 shares of Registrant'sRegistrant’s Class A Common Stock (par value $.01) and 1,287,9091,200,735 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, as filed with the Securities and Exchange Commission on May 31, 2019,  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.  The unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 27, 2018 filed on May 31, 2019 included restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three months ended October 28, 2017.  The unaudited condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended January 26, 2019 filed on May 31, 2019 included restated unaudited condensed consolidated statements of operations and comprehensive income for the three and six months ended January 27, 2018 and a restated unaudited condensed consolidated statement of cash flows for the six months ended January 27, 2018.  This Quarterly Report on Form 10-Q includes restated unaudited condensed consolidated statements of operations and comprehensive income for the three and nine months ended April 28, 2018 and a restated unaudited condensed consolidated statement of cash flows for the nine months ended April 28, 2018.  Tables related to revenues, operating expenses and income taxes for the three and nine months ended April 28, 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 three and nine months ended April 28, 2018 were also adjusted to correct 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 38
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 
 April 28, 2018  July 31, 2017 
       
April 27,
2019
  
July 31,
2018
 
Assets            
      
Current assets:            
Cash, cash equivalents and restricted cash $15,407  $13,343 
Cash and cash equivalents 
$
9,646
  
$
13,496
 
Investment securities available for sale  1,478   1,498  
1,545
  
1,497
 
Contract receivables, net of allowance for doubtful accounts and contract adjustments of $1,693 and $2,125, respectively  27,303   35,107 
Contract receivables, net 
24,769
  
25,615
 
Income tax receivable  1,018   1,293  
1,560
  
1,230
 
Other current assets  2,148   2,119   
1,825
   
1,752
 
              
Total current assets  47,354   53,360  
39,345
  
43,590
 
              
Property, buildings and equipment, net of accumulated depreciation of $17,410 and $16,994, respectively  4,313   4,428 
Property, buildings and equipment, net of accumulated depreciation of $16,967 and $16,799, respectively 
3,397
  
3,870
 
Deferred income taxes  789   1,203  
831
  
789
 
Equity method investment 
2,005
  
2,058
 
Other assets  1,843   1,786  
2,491
  
2,522
 
                
Total assets $54,299  $60,777  
$
48,069
  
$
52,829
 
        
Liabilities and Shareholders' Equity        
        
Liabilities and Shareholders’ Equity      
Current liabilities:              
Accounts payable $4,396  $8,073  
$
3,929
  
$
5,635
 
Lines of credit  -   581  
620
  
-
 
Accrued payroll costs  4,895   6,338  
5,097
  
6,066
 
Current portion of long-term debt and capital lease obligations  60   382  
39
  
54
 
Billings in excess of revenue  3,227   2,850 
Customer deposits 
2,818
  
3,191
 
Other accrued liabilities  2,072   2,645   
1,561
   
1,382
 
              
Total current liabilities  14,650   20,869  
14,064
  
16,328
 
              
Income taxes payable  329   31  
-
  
-
 
Deferred income taxes  -   3  
-
  
-
 
Long-term debt and capital lease obligations  67   66  
23
  
54
 
Commitments and contingencies (Note 15)  -   - 
Commitments and contingencies (Note 13) 
-
  
-
 
              
Shareholders' equity:        
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; 3,037,915 and 3,035,778 shares issued)  30   30 
Class B common stock, par value $.01 per share; (10,000,000 shares authorized; 1,355,810 and 1,357,947 shares issued)  14   14 
Class A common stock, par value $.01 per share (6,000,000 shares authorized; 3,188,720 and 3,041,911 shares issued, respectively) 
32
  
30
 
Class B common stock, par value $.01 per share; (10,000,000 shares authorized; 1,205,005 and 1,351,814 shares issued, respectively) 
12
  
14
 
Capital in excess of par value  17,608   17,608  
17,662
  
17,558
 
Retained earnings  22,578   23,509  
18,645
  
20,973
 
Accumulated other comprehensive loss  (1,923)  (2,018) 
(1,879
)
 
(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: 78,590 shares and 15,789 shares, respectively; Class B common: 0 shares and 64,801 shares, respectively)  
(884
)
  
(907
)
              
Total Ecology and Environment, Inc. shareholders' equity  37,270   38,106 
Total Ecology and Environment Inc. shareholders’ equity 
33,588
  
35,783
 
Noncontrolling interests  1,983   1,702   
394
   
664
 
              
Total shareholders' equity  39,253   39,808 
Total shareholders’ equity  
33,982
   
36,447
 
              
Total liabilities and shareholders' equity $54,299  $60,777 
Total liabilities and shareholders’ equity 
$
48,069
  
$
52,829
 

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

Page 23 of 2838
Ecology and Environment Inc.
Condensed Consolidated Statements of Operations
Unaudited
(amounts in thousands, except share data)

  Three Months Ended  Nine Months Ended 
  April 28, 2018  April 29, 2017  April 28, 2018  April 29, 2017 
             
Revenue, net $23,728  $24,052  $75,892  $74,094 
                 
Cost of professional services and other direct operating expenses  8,793   9,346   27,352   27,787 
Subcontract costs  3,585   3,258   15,082   12,616 
Administrative and indirect operating expenses  7,657   7,588   22,405   22,447 
Marketing and related costs  3,043   2,465   9,033   7,674 
Depreciation and amortization  291   265   827   782 
                 
Income from operations  359   1,130   1,193   2,788 
Net interest (expense) income  52   9   39   (3)
Proxy contest costs, net  -   (550)  -   (550)
Net foreign exchange gain (loss)  15   (9)  (12)  (81)
Other income (expense)  24   (70)  36   (60)
                 
Income before income tax provision  450   510   1,256   2,094 
Income tax provision  43   246   797   1,319 
                 
Net income  407   264   459   775 
                 
Net (income) loss attributable to noncontrolling interests  (243)  (12)  (530)  47 
                 
Net income (loss) attributable to Ecology and Environment, Inc. $164  $252  $(71) $822 
                 
Net income (loss) per common share: basic and diluted $0.04  $0.06  $(0.02) $0.19 
                 
Weighted average common shares outstanding: basic and diluted  4,301,604   4,294,102   4,301,604   4,293,646 
  Three Months Ended  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
             
Gross revenue 
$
21,775
  
$
20,677
  
$
63,780
  
$
68,071
 
                 
Cost of professional services and other direct operating expenses  
8,810
   
7,910
   
24,718
   
24,494
 
Subcontract costs  
2,992
   
2,640
   
11,185
   
13,418
 
Selling, general and administrative expenses  
10,504
   
9,949
   
29,156
   
29,213
 
Depreciation and amortization  
243
   
282
   
784
   
801
 
                 
(Loss) income from operations  
(774
)
  
(104
)
  
(2,063
)
  
145
 
                 
Income from equity method investment  
64
   
137
   
295
   
376
 
Net interest income (expense)  
32
   
58
   
130
   
56
 
Net foreign exchange gain (loss)  
(7
)
  
11
   
2
   
(10
)
Other income (expense)  
(42
)
  
25
   
(35
)
  
37
 
                 
(Loss) income before income tax provision  
(727
)
  
127
   
(1,671
)
  
604
 
Income tax provision (benefit)  
227
   
(38
)
  
(292
)
  
279
 
                 
Net (loss) income  
(954
)
  
165
   
(1,379
)
  
325
 
                 
Net income attributable to noncontrolling interests  
(76
)
  
(96
)
  
(80
)
  
(187
)
                 
Net (loss) income attributable to Ecology and Environment Inc. 
$
(1,030
)
 
$
69
  
$
(1,459
)
 
$
138
 
                 
Net (loss) income per common share: basic and diluted 
$
(0.24
)
 
$
0.02
  
$
(0.34
)
 
$
0.03
 
                 
Weighted average common shares outstanding: basic and diluted  
4,315,135
   
4,301,604
   
4,314,742
   
4,301,604
 

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

Page 34 of 2838
Ecology and Environment Inc.
Condensed Consolidated Statements of Comprehensive Income
Unaudited
(amounts in thousands)

  Three Months Ended  Nine Months Ended 
  April 28, 2018  April 29, 2017  April 28, 2018  April 29, 2017 
             
Net income including noncontrolling interests $407  $264  $459  $775 
Foreign currency translation adjustments  (1)  (36)  194   88 
Unrealized investment (losses) gains, net  (10)  7   (26)  (24)
                 
Comprehensive income  396   235   627   839 
Comprehensive (income) attributable to noncontrolling interests  (209)  (32)  (603)  (37)
                 
Comprehensive income attributable to Ecology and Environment, Inc. $187  $203  $24  $802 
  Three Months Ended  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
             
Net (loss) income including noncontrolling interests 
$
(954
)
 
$
165
  
$
(1,379
)
 
$
325
 
Foreign currency translation adjustments  
11
   
(37
)
  
(69
)
  
-
 
Unrealized investment losses, net  
-
   
(10
)
  
-
   
(26
)
Comprehensive (loss) income  
(943
)
  
118
   
(1,448
)
  
299
 
Comprehensive (income) loss attributable to noncontrolling interests  
(73
)
  
(62
)
  
(10
)
  
(185
)
                 
Comprehensive (loss) income attributable to Ecology and Environment Inc. 
$
(1,016
)
 
$
56
  
$
(1,458
)
 
$
114
 

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

Page 45 of 2838
Ecology and Environment Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
(amounts in thousands)

 Nine Months Ended  Nine Months Ended 
 April 28, 2018  April 29, 2017  
April 27,
2019
  
April 28,
2018
(Restated)
 
Cash flows from operating activities:            
Net income $459  $775 
Net (loss) income 
$
(1,379
)
 
$
325
 
Adjustments to reconcile net income to net cash provided by operating activities:              
Depreciation and amortization  827   782  
784
  
801
 
Deferred income tax benefit  380   2,356 
Tax impact of share-based compensation  -   (6)
Provision for deferred income taxes 
(53
)
 
(61
)
Share based compensation expense 
127
  
94
 
Gain on sale of assets and investment securities  (19)  (90) 
(40
)
 
(19
)
Net recovery of contract adjustments  (60)  (1,178)
Net bad debt (recovery) expense  (96)  399 
Net recoveries of contract adjustments 
(2
)
 
(60
)
Net bad debt recoveries 
(96
)
 
(63
)
Changes in:              
- contract receivables  8,063   2,953  
795
  
7,773
 
- other current assets  (46)  (607) 
(216
)
 
72
 
- income tax receivable  275   (1,906) 
(342
)
 
266
 
- equity method investment 
53
  
(376
)
- other non-current assets  (54)  (18) 
3
  
254
 
- accounts payable  (2,784)  49  
(809
)
 
(2,668
)
- accrued payroll costs  (1,409)  (1,724) 
(921
)
 
(1,539
)
- income taxes payable  285   (6) 
-
  
286
 
- billings in excess of revenue  505   196 
- customer deposits 
(331
)
 
636
 
- other accrued liabilities  (601)  700   
210
   
(295
)
Net cash provided by operating activities  5,725   2,675 
Net cash (used in) provided by operating activities  
(2,217
)
  
5,426
 
              
Cash flows from investing activities:              
Proceeds from sale of subsidiaries  -   75 
Purchase of property, buildings and equipment  (702)  (479) 
(371
)
 
(654
)
Proceeds from sale of property, buildings and equipment  19   1,483 
Purchase of investment securities  (23)  (22)
Net cash (used in) provided by investing activities  (706)  1,057 
Proceeds from sale of equipment 
69
  
19
 
(Purchase) sale of investment securities  
(24
)
  
(23
)
Net cash used in investing activities  
(326
)
  
(658
)
              
Cash flows from financing activities:              
Dividends paid  (1,721)  (1,720) 
(1,726
)
 
(1,721
)
Repayment of long-term debt and capital lease obligations  (373)  (196)
Net (repayments) borrowings under lines of credit  (577)  370 
Repayment of debt 
(43
)
 
(373
)
Net borrowings (repayments) under lines of credit 
632
  
(356
)
Distributions to noncontrolling interests  (322)  (681)  
(177
)
  
(322
)
Net cash used in financing activities  (2,993)  (2,227)  
(1,314
)
  
(2,772
)
              
Effect of exchange rate changes on cash and cash equivalents  38   9   
(3
)
  
(46
)
              
Net increase in cash, cash equivalents and restricted cash  2,064   1,514 
Net (decrease) increase in cash, cash equivalents and restricted cash 
(3,860
)
 
1,950
 
Cash, cash equivalents and restricted cash at beginning of period  13,343   10,161   
13,746
   
13,135
 
              
Cash, cash equivalents and restricted cash at end of period $15,407  $11,675  
$
9,886
  
$
15,085
 
              
Supplemental disclosure of cash flow information:              
Cash paid during the period for:              
Interest $52  $90  
$
21
  
$
36
 
Income taxes  175   987  
331
  
87
 
Supplemental disclosure of non-cash items:              
Capital lease obligations incurred  59   - 
Proceeds from capital lease obligations 
-
  
59
 

The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 of 28
Ecology and Environment, Inc.
Condensed Consolidated Statements of Changes in 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  -   -   -   -   -   (71)  -   -   -   530 
Foreign currency translation adjustment  -   -   -   -   -   -   121   -   -   73 
Cash dividends declared ($0.20 per share)  -   -   -   -   -   (860)  -   -   -   - 
Unrealized investment losses, net  -   -   -   -   -   -   (26)  -   -   - 
Conversion of Class B common stock to Class A common stock  2,137   -   (2,137)  -   -   -   -   -   -   - 
Distributions to noncontrolling interests  -   -   -   -   -   -   -   -   -   (322)
Balance at April 28, 2018 (unaudited)  3,037,915  $30   1,355,810  $14  $17,608  $22,578  $(1,923)  92,121  $(1,037) $1,983 

The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 6 of 2838
Ecology and Environment Inc.
Notes to Condensed Consolidated Financial Statements
Unaudited

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 withDuring the nine months ended April 27, 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 ownedmajority-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.  During the three months ended April 26, 2019, the Company sold its majority interest in its subsidiary in Ecuador, which is not expected to have a material impact on its consolidated results of operations, financial position or cash flows for future reporting periods.  The Company’s staff is comprised of individuals representing more than 80numerous 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 varietymajority of clientsemployees 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, 20172018 filed with the Securities and Exchange CommissionSEC (the “2017“2018 Annual Report”).  TheOther 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 20172018 Annual Report were also followed for this interimquarterly report.  The condensed consolidated results of operations for the three and nine months ended April 28, 201827, 2019 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, 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 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 (the “Restated Annual Financial Statements”).  The Company’s Quarterly Reports on Forms 10-Q for the periods ended October 27, 2018 and January 26, 2019 included restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three months ended October 28, 2017 and the three and six months ended January 27, 2018 (the “Restated Unaudited Condensed Consolidated Financial Statements”).  This Quarterly Report on Form 10-Q includes restated unaudited condensed consolidated statements of operations, comprehensive income and cash flows for the three and nine months ended April 28, 2018.  Tables related to revenues, operating expenses and income taxes for the three and nine months ended April 28, 2018 included in Item 2 of this Quarterly Report on Form 10-Q have also been restated.

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.

Page 7 of 38
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 April 28, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $2.8 million, $0.3 million and less than $0.1 million in consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.  For the nine months ended April 28, 2018, the GAC Deconsolidation Adjustments resulted in decreases of $8.1 million, $0.7 million and less than $0.1 million in consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.

In addition to the GAC Deconsolidation Adjustments, previously filed financial statements for the three and nine months ended April 28, 2018 were also adjusted to correct 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 April 28, 2018, the Out of Period Adjustments resulted in decreases of $0.2 million, less than $0.1 million and $0.1 million of consolidated gross revenue, income before income tax provision and net income attributable to EEI, respectively.  For the nine months ended April 28, 2018, the Out of Period Adjustments resulted in increases of $0.3 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 April 28, 2018, filed with the SEC on June 12, 2018.

Page 8 of 38
Ecology and Environment Inc.
Condensed Consolidated Statements of Operations
(amounts in thousands, except share data)

  Three Months Ended April 28, 2018 
  
As
Previously
Reported
  
GAC
Deconsolidation
Adjustments
  
Out of Period
Adjustments
  Restated 
             
Gross revenue 
$
23,728
  
$
(2,828
)
 
$
(223
)
 
$
20,677
 
                 
Direct cost of professional services and other direct operating expenses  
8,793
   
(883
)
  
-
   
7,910
 
Subcontract costs  
3,585
   
(733
)
  
(212
)
  
2,640
 
Selling, general and administrative expenses  
10,700
   
(751
)
  
-
   
9,949
 
Depreciation and amortization  
291
   
(9
)
  
-
   
282
 
                 
Income (loss) from operations  
359
   
(452
)
  
(11
)
  
(104
)
                 
Income from equity method investment  
-
   
137
   
-
   
137
 
Net interest income (expense)  
52
   
6
   
-
   
58
 
Net foreign exchange (loss) gain  
15
   
(4
)
  
-
   
11
 
Other income (expense)  
24
   
1
   
-
   
25
 
                 
Income (loss) before income tax provision  
450
   
(312
)
  
(11
)
  
127
 
Income tax provision  
43
   
(121
)
  
40
   
(38
)
                 
Net (loss) income  
407
   
(191
)
  
(51
)
  
165
 
                 
(Income) loss attributable to noncontrolling interests  
(243
)
  
147
   
-
   
(96
)
                 
Net (loss) income attributable to Ecology and Environment Inc. 
$
164
  
$
(44
)
 
$
(51
)
 
$
69
 
                 
Net (loss) income per common share: basic and diluted 
$
0.04
          
$
0.02
 
                 
Weighted average common shares outatanding: basic and diluted  4,301,604           4,301,604 

Page 9 of 38
  Nine Months Ended April 28, 2018 
  
As
Previously
Reported
  
GAC
Deconsolidation
Adjustments
  
Out of Period
Adjustments
  Restated 
             
Gross revenue 
$
75,892
  
$
(8,093
)
 
$
272
  
$
68,071
 
                 
Direct cost of professional services and other direct operating expenses  
27,352
   
(2,858
)
  
-
   
24,494
 
Subcontract costs  
15,082
   
(1,921
)
  
257
   
13,418
 
Selling, general and administrative expenses  
31,438
   
(2,225
)
  
-
   
29,213
 
Depreciation and amortization  
827
   
(26
)
  
-
   
801
 
                 
Income (loss) from operations  
1,193
   
(1,063
)
  
15
   
145
 
                 
Income from equity method investment  
-
   
376
   
-
   
376
 
Net interest income (expense)  
39
   
17
   
-
   
56
 
Net foreign exchange (loss) gain  
(12
)
  
2
   
-
   
(10
)
Other income (expense)  
36
   
1
   
-
   
37
 
                 
Income (loss) before income tax provision  
1,256
   
(667
)
  
15
   
604
 
Income tax provision  
797
   
(280
)
  
(238
)
  
279
 
                 
Net (loss) income  
459
   
(387
)
  
253
   
325
 
                 
(Income) loss attributable to noncontrolling interests  
(530
)
  
342
   
1
   
(187
)
                 
Net (loss) income attributable to Ecology and Environment Inc. 
$
(71
)
 
$
(45
)
 
$
254
  
$
138
 
                 
Net (loss) income per common share: basic and diluted 
$
(0.02
)
         
$
0.03
 
                 
Weighted average common shares outatanding: basic and diluted  4,301,604           4,301,604 

Ecology and Environment Inc.
Condensed Consolidated Statements of Comprehensive Income
(amounts in thousands)

  Three Months Ended April 28, 2018 
  
As
Previously
Reported
  
GAC
Deconsolidation
Adjustments
  
Out of Period
Adjustments
  Restated 
             
Net income including noncontrolling interests $407  $(191) $(51) $165 
Foreign currency translation adjustments  (1)  (36)  -   (37)
Unrealized investment (losses) gains, net  (10)  -   -   (10)
                 
Comprehensive income  396   (227)  (51)  118 
Comprehensive (income) loss attributable to noncontrolling interests  (209)  147   -   (62)
                 
Comprehensive income attributable to EEI $187  $(80) $(51) $56 

Page 10 of 38
  Nine Months Ended April 28, 2018 
  
As
Previously
Reported
  
GAC
Deconsolidation
Adjustments
  
Out of Period
Adjustments
  Restated 
             
Net income including noncontrolling interests $459  $(387) $253  $325 
Foreign currency translation adjustments  194   (194)  -   - 
Unrealized investment (losses) gains, net  (26)  -   -   (26)
                 
Comprehensive income  627   (581)  253   299 
Comprehensive (income) loss attributable to noncontrolling interests  (603)  418   -   (185)
                 
Comprehensive income attributable to EEI $24  $(163) $253  $114 

Page 11 of 38
Ecology and Environment Inc.
Condensed Consolidated Statement of Cash Flows
(amounts in thousands)

  Nine Months Ended April 28, 2018 
  
As
Previously
Reported
  
Impact of
GAC
Deconsolidation
  
Other
Adjustments
  Restated 
Cash flows from operating activities:            
Net income $459  $(387) $253  $325 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization  827   (26)  -   801 
Provision for deferred income taxes  380   (599)  158   (61)
Share based compensation expense  -   -   94   94 
Gain on sale of assets and investment securities  (19)  -   -   (19)
Net recoveries of contract adjustments  (60)  -   -   (60)
Net bad debt recoveries  (96)  33   -   (63)
Changes in:                
- contract receivables  8,063   175   (465)  7,773 
- other current assets  (46)  (5)  123   72 
- income tax receivable  275   387   (396)  266 
- equity method investment  -   (376)  -   (376)
- other non-current assets  (54)  296   12   254 
- accounts payable  (2,784)  (117)  233   (2,668)
- accrued payroll costs  (1,409)  (130)  -   (1,539)
- income taxes payable  285   1   -   286 
- customer deposits  505   131   -   636 
- other accrued liabilities  (601)  306   -   (295)
Net cash provided by used in operating activities  5,725   (311)  12   5,426 
                 
Cash flows from investing activities:                
Purchase of property, building and equipment  (702)  48   -   (654)
Proceeds from sale of building and equipment  19   -   -   19 
Purchase of investment securities  (23)  -   -   (23)
Net cash used in investing activities  (706)  48   -   (658)
                 
Cash flows from financing activities:                
Dividends paid  (1,721)  -   -   (1,721)
Repayment of debt  (373)  -   -   (373)
Net borrowings (repayment) of lines of credit  (577)  221   -   (356)
Distributions to noncontrolling interests  (322)  -   -   (322)
Net cash used in financing activities  (2,993)  221   -   (2,772)
                 
Effect of exchange rate changes on cash and cash equivalents  38   (71)  (13)  (46)
                 
Net increase in cash, cash equivalents and restricted cash  2,064   (113)  (1)  1,950 
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 $15,407  $(321) $(1) $15,085 

2.3.
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 12 of 38
Accounting Pronouncements Adopted During the Nine Months Ended April 28, 2018

The Company did not adopt any ASUs during the nine months ended April 28, 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 April 28, 201827, 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 useguidance in the U.S and internationally. ASU 2014-09, supersedesforms the basis for FASB ASC Topic 606 (“ASC Topic 606”), which superseded previous authoritative U.S. GAAP guidance regarding revenue recognition requirements inrecognition.  The Company adopted ASC Topic 605606 effective August 1, 2018.  Refer to Note 7 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 understandfor additional disclosures regarding the nature, amount, timing, and uncertaintyCompany’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), Deferral2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of the Effective DateFinancial Assets and Financial Liabilities (“ASU 2015-14”2016-01”).  The amendments in ASU 2015-14 defer2016-01 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 dateguidance 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 28
Subsequent to the issuance of ASU 2014-09, FASB issued additional ASUs that provide clarification for specific aspects of ASU 2014-09. The2016-01 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, orAugust 1, 2018 by recording thea cumulative effect on prior reporting periodsadjustment of less than $0.1 million to beginning retained earnings inand beginning accumulated other comprehensive income on the year thatcondensed consolidated balance sheets.  The cumulative effect adjustment is also separately reported on the standard becomes effective (the “modified retrospective approach”), and includes a numbercondensed 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, and has made substantial progress on its detailed review of contracts for its U.S. and foreign operations. 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.  ThisGAAP, 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 willpolicy 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 forclassified 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 assessingadopted the provisions of ASU 2016-15 effective August 1, 2018 and has not yet estimatedelected the “cumulative earnings approach.”
The Company received $0.2 million of dividends from its impact onequity method investee during the Company’s consolidated financial statements.nine months ended April 27, 2019 that are included in cash flows from operating activities.

Accounting Pronouncements Not Yet Adopted as of April 27, 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 that amended and clarified the guidance in ASU 2016-02, 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, as amended by subsequent updates that amended and clarified the guidance in 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 13 of 38
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.

3.4.
U.S. Tax ReformSignificant Transactions During the Three Months Ended April 27, 2019

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.Staff Reduction Programs

In December 2018, the Company began to notify 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”), which are being implemented in connection with a corporate restructuring plan within the Company’s U.S. operating segment, were substantially completed by April 27, 2019 and are expected to be completed by July 31, 2019. Company management anticipates that the 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.  During the three months ended April 27, 2019, the Company recorded and paid approximately $0.8 million of employee severance and termination expenses related to the Staff Reduction Programs, which was reported in selling, general and administrative expenses on the condensed consolidated statements of operations.  The changesCompany expects to record additional severance expense of approximately $0.1 million during the three months ended July 31, 2019 in connection with the Staff Reduction Programs.

Expenses Associated with Restatements of Financial Statements

As described above, the Company restated its audited consolidated financial statements for the fiscal years ended July 31, 2016 and 2017 and unaudited condensed consolidated financial statements for the quarters ended October 28, 2017, January 27, 2018 and April 28, 2018.  Financial data included in tables and various accounting policies and commentaries included in the Tax Act are broadCompany’s Restated 2019 Annual Report and complex.Restated 2019 Quarterly Reports were also restated or otherwise revised.  These restatements required extensive internal and external resources to complete, including significant incremental fees paid to the Company’s independent auditors, tax consultants and external legal counsel.  The Company’s U.S. operating segment recorded incremental audit, tax provision recorded forand legal expenses of $0.9 million in selling, general and administrative expenses on the condensed consolidated statements of operations during the nine months ended April 28, 2018 reflects management’s estimates27, 2019, $0.6 million of which was recorded during 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.
Page 8 of 28
Specific impacts of the Tax Act are summarized in Note 9 of these condensed consolidated financial statements.three months ended April 27, 2019.

4.5.
Cash, Cash Equivalents and Restricted Cash

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

Balance at  
April 27,
2019
  
July 31,
2018
 
April 28,
2018
  
July 31,
 2017
  (in thousands) 
(in thousands)    
Cash and cash equivalents $15,121  $13,029  $9,646  $13,496 
Restricted cash  286   314 
Restricted cash included in other assets  240   250 
Total cash, cash equivalents and restricted cash $15,407  $13,343  $9,886  $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 $0.7less than $0.1 million and $0.2$0.4 million were included in cash and cash equivalents in the table above at April 28, 201827, 2019 and July 31, 2017,2018, respectively.

The Company is required to maintain restricted  Restricted cash on depositincluded in Brazil asother 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.

5.6.
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.

Page 14 of 38
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 nine months ended April 28, 201827, 2019 or the fiscal year ended July 31, 2017.2018.

The carrying amount of cash, cash equivalents and restricted cash approximated fair value at April 28, 201827, 2019 and July 31, 2017.2018.  These assets were classified as level 1 instruments at both dates.

Investment securities available for sale of $1.5 million at April 28, 201827, 2019 and July 31, 20172018 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.

Page 9Prior 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 28
Unrealizedcomprehensive 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 nine months ended April 28, 2018 and April 29, 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 nine months ended April 28, 201827, 2019 and April 29, 2017.28, 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 assessmentrelative immateriality of the current financial market and corresponding risks associated with theconsolidated debt and line of credit borrowings, management believes that the carrying amount of these liabilities approximated fair value at April 28, 201827, 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 April 28, 2018 or27, 2019 and July 31, 2017.2018.

6.7.
Revenue and Contract Receivables, net

Revenue RecognitionAdoption of ASC Topic 606

The Company derivesadopted ASC Topic 606 effective August 1, 2018.  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, 2018, and did not record any material adjustment to gross revenue for the three or nine months ended April 27, 2019 as a result of applying the guidance in ASC Topic 606.

Revenue Recognition under ASC Topic 606

The Company recognizes substantially all of its revenue from environmental consulting work, principally from the sale of labor hours.  Thehours 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 TypeWork TypeRevenue Recognition Policy
Time and materialsConsultingAs incurred at contract rates.
Fixed priceConsultingPercentage 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-plusConsulting
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 condensedCompany’s consolidated statements of operations representrepresents services rendered for which the Company maintains a primary contractual relationship with its customers.  Included in revenuesrevenue are certain services outside the Company’s normal operations that the Company has elected to subcontract to other contractors.

Page 15 of 38
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 earnedUnder 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, whereinunder 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 recognizedthen 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 costsefforts 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 isCompany’s 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 recordsrecorded an allowance for project disallowances in other accrued liabilities for potential disallowances resulting from government audits (referof $0.7 million in other accrued liabilities at April 27, 2019 and July 31, 2018.  Adjustments to Note 10 of these condensed consolidated financial statements).  Allowancesallowances 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-outcloseout procedures.

Change orders can occur whenContract 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.  Claimstherefore, are amounts in excessaccounted 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 orderscontract modifications when it is probable that the change ordermodification will be approved and the amount can be reasonably estimated.  Revenues are recognized only up to the amount

Cost of costs incurred on contract claims when realization is probable, estimable and reasonable support from the customer exists.
Page 10 of 28
The Company expenses all bid and proposalprofessional services and other pre-contract costs as incurred.  Outdirect 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 includedincurred 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 subsidiariesoperations 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 16 of 38
Contract Receivables, net and Contract Assets

Contract receivables, net are summarized in the following table.

  
April 27,
2019
  
July 31,
2018
 
  (in thousands) 
Contract Receivables:      
Billed $12,616  $12,905 
Unbilled  13,324   13,994 
Total contract receivables  25,940   26,899 
Allowance for doubtful accounts  (1,171)  (1,284)
Contract receivables, net $24,769  $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 revenuesrevenue from incurred costsefforts 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 April 27, 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 debtsdoubtful accounts is recorded within administrativeselling, general and indirect operatingadministrative 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, Netassets are transferred to billed contract receivables when the right to consideration becomes unconditional.  The Company did not record any contract assets at April 27, 2019 or July 31, 2018.

At April 27, 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.

Allowance for Doubtful Accounts

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

  Three Months Ended Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
  (in thousands) 
             
Balance at beginning of period $1,234  
$
1,902  $1,284  $2,044 
Provision for doubtful accounts during the period  89   154   159   246 
Write-offs and recoveries of allowance recorded in prior periods  (152)  
(444
)
  (272)  (678)
Balance at end of period $1,171  
$
1,612  $1,171  $1,612 

Page 17 of 38
Contract Receivable Concentrations

Contract receivables netand the allowance for doubtful accounts are summarized in the following table.

 Balance at 
 
April 28,
2018
 
July 31,
2017
 
 (in thousands) 
Contract Receivables:  
Billed $13,404  $16,033 
Unbilled  15,592   21,199 
   28,996   37,232 
Allowance for doubtful accounts and contract adjustments  (1,693)  (2,125)
Contract receivables, net $27,303  $35,107 

Billed contract receivables included contractual retainage balances of $1.3 million and $0.9 million at April 28, 2018 and July 31, 2017, respectively.  Management anticipates that the Company will substantially bill and collect the unbilled receivables and retainage balances outstanding at April 28, 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.

 Balance at April 28, 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. $18,258  $555  $25,528  $797 
Subsidiaries located in South America  10,738   1,138   11,704   1,328 
Totals $28,996  $1,693  $37,232  $2,125 
Page 11 of 28
Contract adjustments related to projects in the United States 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.
  April 27, 2019  
July 31, 2018
Restated
 
  
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 $20,340  $505  $21,580  $569 
South American operations  5,600   666   5,319   715 
Totals $25,940  $1,171  $26,899  $1,284 

The allowance for doubtful accounts and contract adjustments for the Company’s South American subsidiariesoperations represented 11%12% of related contract receivables at April 28, 2018 and July 31, 2017.  During27, 2019 compared to 2% for the first nine months of fiscal year 2018, unstableCompany’s U.S. operations.  Unstable local economies continued tothat adversely impactimpacted certain of the Company’sour South American clients resulting in increased collection risksrecent 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 AdjustmentsDisaggregation of Revenues

Activity withinThe following table provides a summary of the allowance for doubtful accountsCompany’s gross revenue, disaggregated by operating segment and contract adjustmentstype.

  Three Months Ended  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
Gross revenue from time and materials contracts:          
U.S. operations $10,699  $10,038  $29,689  $28,826 
South American operations  -   -   -   - 
Total gross revenue from time and materials contracts $10,699  $10,038  $29,689  $28,826 
                 
Gross revenue from fixed price contracts:                
U.S. operations $2,888  $3,248  $9,445  $10,336 
South American operations  4,840   4,112   12,530   14,287 
Total gross revenue from fixed price contracts $7,728  $7,360  $21,975  $24,623 
                 
Gross revenue from cost-plus contracts:                
U.S. operations $3,348  $3,279  $12,116  $14,622 
South American operations  -   -   -   - 
Total gross revenue from cost-plus contracts $3,348  $3,279  $12,116  $14,622 
                 
Gross revenue from all contracts:                
U.S. operations $16,935  $16,565  $51,250  $53,784 
South American operations  4,840   4,112   12,530   14,287 
Consolidated gross revenue $21,775  $20,677  $63,780  $68,071 

Customer Deposits

Customer deposits of $2.8 million and $3.2 million at April 27, 2019 and July 31, 2018, respectively, represent cash advances received from customers for future services.

8.
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 18 of 38
As of April 27, 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 April 27, 2019 and July 31, 2018 is summarized in the following table.

   Three Months Ended  Nine Months Ended 
   April 28, 2018  April 29, 2017  April 28, 2018  April 29, 2017 
   (in thousands) 
            
Balance at beginning of period $1,957  $2,047  $2,125  $6,792 
Net increase (decrease) due to adjustments in the allowance for:                
Contract adjustments (1)
  (25)  ---   (60)  (4,941)
Doubtful accounts (2)
  (239)  213   (372)  409 
Balance at end of period $1,693  $2,260  $1,693  $2,260 

(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.
  
April 27,
2019
  
July 31,
2018
 
  (in thousands) 
       
Current assets
 
$
3,269
  
$
2,359
 
Noncurrent assets
  
766
   
878
 
Total assets
 
$
4,035
  
$
3,237
 
         
Current liabilities
 
$
5,753
  
$
5,408
 
Noncurrent liabilities
  
16
   
32
 
Total liabilities
  
5,769
   
5,440
 
Total Ecology and Environment Inc. shareholder’s equity
  
(688
)
  
(1,051
)
Noncontrolling interests shareholders’ equity
  
(1,046
)
  
(1,152
)
Total shareholders’ equity
  
(1,734
)
  
(2,203
)
Total liabilities and shareholders’ equity
 
$
4,035
  
$
3,237
 

DuringTotal gross revenue of the consolidated VIE was $9.5 million and $8.1 million for the nine months ended April 29, 2017,27, 2019 and April 28, 2018, respectively.  With the exception of restricted cash of $0.2 million and $0.3 million included in noncurrent assets at April 27, 2019 and July 31, 2018, respectively (refer to Note 5), 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 millionis 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 agedaccounting.  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 projectstatements 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, basedCompany’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 $2.0 million and $2.1 million at April 27, 2019 and July 31, 2018, respectively.  In April 2019, GAC issued additional shares to two of its senior employees, which effectively reduced the Company’s ownership percentage to 52.48% as of April 27, 2019 from 55.10% at July 31, 2018.

Page 19 of 38
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 nine months ended April 27, 2019 and April 28, 2018 is summarized in the following table.

  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
 
  (in thousands) 
    
Equity investment carrying value at beginning of period $2,058  $1,464 
GAC net income attributable to EEI  295   376 
Dividends declared and paid during the period  (348)  --- 
Equity investment carrying value at end of period $2,005  $1,840 

GAC’s financial position as of April 27, 2019 and July 31, 2018 is summarized in the following table.

  
April 27,
2019
  
July 31,
2018
 
  (in thousands) 
       
Current assets
 
$
5,495
  
$
5,713
 
Noncurrent assets
  
1,032
   
501
 
Total assets
 
$
6,527
  
$
6,214
 
         
Current liabilities
 
$
2,832
  
$
2,620
 
Noncurrent liabilities
  
900
   
593
 
Total liabilities
  
3,732
   
3,213
 
Total Ecology and Environment Inc. shareholder’s equity
  
1,487
   
1,678
 
Minority interests shareholders’ equity
  
1,308
   
1,323
 
Total shareholders’ equity
  
2,795
   
3,001
 
Total liabilities and shareholders’ equity
 
$
6,527
  
$
6,214
 

The results of GAC’s operations for the nine months ended April 27, 2019 and April 28, 2018 are summarized in the following table.

  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
 
  (in thousands) 
       
Gross revenue
 
$
9,456
  
$
8,095
 
Direct cost of services and subcontract costs
  
6,053
   
4,781
 
Income from operations
  
775
   
951
 
Net income
  
538
   
681
 
Net income attributable to EEI
  
295
   
376
 

7.9.
Lines of Credit

Unsecured lines of credit are summarized in the following table.

 Balance at  
April 27,
2019
  
July 31,
2018
 
 
April 28,
2018
  
July 31,
2017
  (in thousands) 
 (in thousands)       
Outstanding cash draws, recorded as lines of credit on the accompanying condensed consolidated balance sheets $---  $581 
Short-term loans issued under lines of credit included in current portion of long-term debt  ---   200 
Outstanding letters of credit to support operations  2,337   2,511 
Outstanding cash advances $620  $--- 
Outstanding letters of credit  1,570   1,668 
Total amounts used under lines of credit  2,337   3,292  2,190  1,668 
Remaining amounts available under lines of credit  37,792   36,529   33,668   36,832 
Total approved unsecured lines of credit $40,129  $39,821  $35,858  $38,500 

As of April 28, 2018, contractual interest rates for lines of credit ranged from 3.37% to 4.12% for theThe Company’s U.S. operations are supported by two line of credit arrangements:
$19.0 million available line of credit at April 27, 2019; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of less than $0.1 million were outstanding at April 27, 2019 and 9.12% to 13.42% for theJuly 31, 2018; interest rate on cash advances is based on LIBOR plus 275 basis points; and

Page 20 of 38
$13.5 million available line of credit at April 27, 2019; no outstanding cash advances as of April 27, 2019 or July 31, 2018; letters of credit of less than $0.1 million were outstanding at April 27, 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.  The Company’s lenders have reaffirmed the linesoperations are supported by two line of credit within the past twelve months.

8.
Debt and Capital Lease Obligations

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

  Balance at 
  
April 28,
2018
  
July 31,
 2017
 
  (in thousands) 
       
Bank loans (interest rate 2.94% at April 28, 2018) $33  $328 
Capital lease obligations (interest rates ranging from 7.36% to 17.07% at April 28, 2018)  94   120 
   127   448 
Current portion of long-term debt and capital lease obligations  (60)  (382)
Long-term debt and capital lease obligations $67  $66 
arrangements:
Page 12
$2.0 million available line of 28
The aggregate maturities of long-term debt and capital lease obligationscredit to support operations in Peru; no outstanding cash advances as of April 28,27, 2019 or July 31, 2018; letters of credit of $1.0 million were outstanding at April 27, 2019 and July 31, 2018, are summarizedrespectively; interest rate on cash advances is affirmed or negotiated annually; and
$1.4 million available line of credit to support operations in the following table.Brazil; $0.6 million of cash advances were outstanding as of April 27, 2019; $0.6 million of letters of credit were outstanding at April 27, 2019 and July 31, 2018; interest rate on cash advances is based on a Brazilian government economic index.

Twelve Months Ended
 April 28,
 Amount 
  (in thousands) 
     
2019 $60 
2020  46 
2021  21 
Total $127 

9.10.
Income Taxes

The estimated effective tax rate was 63.5% and 63.0% for the nine months ended April 28, 2018 and April 29, 2017, respectively.  During interim reporting periods, the effective tax rate may be impacted by changes in the mix of forecasted pre-tax income or losses 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 Tax Act (refer to Note 3 of these condensed consolidated financial statements) lowered the Company’s statutory federalestimated effective tax rate from 34% (effective through December 31, 2017)decreased to 21% (effective January 1, 2018).  As the Company has a July 31 fiscal year-end, the lower corporate income tax rate will be phased in, resulting in an average statutory federal tax rate of approximately 26%17.5% for the fiscal year ending July 31, 2018, and 21%nine months ended April 27, 2019 from 46.2% for subsequent fiscal years.  Due to the Company’s minimal loss from U.S. operations, the reduction in the statutory federal tax rate did not have a material impact on the income tax provision related to pre-tax income during the nine months ended April 28, 2018.

The reduction of Unfavorable permanent adjustments related to forecasted losses in the U.S. resulted in an effective tax rate that was lower than 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 the nine months ended April 28, 2018 as a result of this revaluation of deferred tax assets and liabilities.

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 of $0.1 million related to these territorial tax provisions during the nine months ended April 28, 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 declared by a foreign subsidiary.  As of April 28, 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 in the Tax Act.

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 nine months ended April 28, 2018, and certain of which will become effective during future fiscal years.

27, 2019. The decrease in the estimated effective tax rate for the nine months ended April 29, 2017 includes27, 2019 resulted mainly from changes in the tax impactpre-tax earnings of the Company’s portionU.S. operations in the current fiscal year and from the impact of dividends declared by its majority owned subsidiarychanges in ChileU.S. corporate income tax regulations included in the Tax Cuts and reversalJobs Act enacted in December 2017, which included:

A reduction in the U.S. statutory corporate income tax rate to 21% for the nine months ended April 27, 2019, compared with a blended rate of 26% for the nine months ended April 28, 2018.
Certain one-time tax items, including revaluation of deferred tax assets and liabilities and the effect of a deferrednew territorial tax asset previously maintained bysystem, that increased the Company’s majority owned subsidiary in Peru.
Page 13 offederal income tax expense by a combined $0.4 million for the nine-months ended April 28,
10.
Other Accrued Liabilities

Other accrued liabilities are summarized in the following table.

 Balance at 
 
April 28,
 2018
  
July 31,
2017
 
 (in thousands) 
       
Allowance for project disallowances $687  $687 
Dividends payable to noncontrolling shareholders of majority-owned subsidiaries  410   517 
Other accrued expenses  975   1,441 
Total other accrued liabilities $2,072  $2,645 

2018.  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,Company did not record any similar or when actual settlements are finalized.  Activity within the allowance for project disallowances is summarized in the following table.
  Three Months Ended  Nine Months Ended 
   
April 28,
2018
  
April 29,
 2017
  
April 28,
2018
  
April 29,
2017
 
   (in thousands) 
             
Balance at beginning of period $687  $711  $687  $1,819 
Reduction of settlement estimate recorded in prior periods  ---   (24)  ---   (1,132)
Balance at end of period $687  $687  $687  $687 
Settlements of certain contracts completed during prior fiscal years were finalizedother unusual adjustments to federal income tax expense during the nine months ended April 29, 2017, resulting in no cash received or paid during the period.27, 2019.

Dividends payable to noncontrolling shareholders of majority-owned subsidiaries includes dividends declared by a subsidiary in South America during the first nine months of fiscal year 2017.  As of April 28, 2018, management anticipates that these dividends payable will be paid within one year.
11.
Stock Award PlanShareholders’ Equity
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 following tables provide reconciliations of changes in consolidated shareholders’ equity for the Company’s Board of Directors adoptedthree months ended April 27, 2019 and April 28, 2018.  Amounts for 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 ofthree months ended April 28, 2018 have been restated for the Company issued a totalGAC Deconsolidation Adjustments and Out 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 fully vestedPeriod Adjustments described in April 2018 upon expiration of certain restrictions regarding transfer of the shares.Note 2.

EEI recorded non-cash compensation expense
  Three Months Ended April 27, 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 January 26, 2019 $31  $13  $17,629  $20,539  $(1,893) $(884) $484 
                             
Net (loss) income  -   -   -   (1,030)  -   -   76 
Cash dividends declared ($0.20 per share)  -   -   -   (864)  -   -   - 
Conversion of Class B common stock to Class A common stock  1   (1)  -   -   -   -   - 
Foreign currency translation adjustment  -   -   -   -   14   -   (3)
Share-based compensation expense  -   -   33   -   -   -   - 
Distributions to noncontrolling interests  -   -   -   -   -   -   (61)
Purchase of additional noncontrolling interests  -   -   -   -   -   -   (102)
                             
Balance at April 27, 2019 $32  $12  $17,662  $18,645  $(1,879) $(884) $394 

Page 21 of less than $0.1 million during38
  Three Months Ended April 28, 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 January 27, 2018 $30  $14  $17,641  $23,074  $(1,806) $(1,037) $878 
                             
Net income  -   -   -   69   -   -   96 
Cash dividends declared ($0.20 per share)  -   -   -   (860)  -   -   - 
Foreign currency translation adjustment  -   -   -   -   (3)  -   (34)
Conversion of Class B common stock to Class A common stock  -   -   -   -   -   -   - 
Unrealized investment losses, net  -   -   -   -   (10)  -   - 
Share-based compensation expense  -   -   24   -   -   -   - 
Distributions to noncontrolling interests  -   -   -   -   -   -   (129)
                             
Balance at April 28, 2018 (Restated) $30  $14  $17,665  $22,283  $(1,819) $(1,037) $811 

The following tables provide reconciliations of changes in consolidated shareholders’ equity for the nine months ended April 27, 2019 and April 28,, 2018. Amounts for the nine months ended April 28, 2018 have been restated for the GAC Deconsolidation Adjustments and April 29, 2017.Out of Period Adjustments described in Note 2.

12.
Shareholders' Equity
  Nine Months Ended April 27, 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 (loss) income  -   -   -   (1,459)  -   -   80 
Cash dividends declared ($0.20 per share)  -   -   -   (864)  -   -   - 
Foreign currency translation adjustment  -   -   -   -   1   -   (70)
Conversion of Class B common stock to Class A common stock  2   (2)  -   -   -   -   - 
Issuance of stock under stock award plan  -   -   4   -   -   23   - 
Share-based compensation expense  -   -   100   -   -   -   - 
Distributions to noncontrolling interests  -   -   -   -   -   -   (177)
Purchase of additional noncontrolling interests  -   -   -   -   -   -   (103)
                             
Balance at April 27, 2019 $32  $12  $17,662  $18,645  $(1,879) $(884) $394 

  Nine Months Ended April 28, 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 $30  $14  $17,570  $23,005  $(1,795) $(1,037) $947 
                             
Net income  -   -   -   138   -   -   187 
Cash dividends declared ($0.20 per share)  -   -   -   (860)  -   -   - 
Foreign currency translation adjustment  -   -   -   -   2   -   (2)
Conversion of Class B common stock to Class A common stock  -   -   -   -   -   -   - 
Unrealized investment losses, net  -   -   -   -   (26)  -   - 
Share-based compensation expense  -   -   95   -   -   -   - 
Distributions to noncontrolling interests  -   -   -   -   -   -   (321)
                             
Balance at April 28, 2018 (Restated) $30  $14  $17,665  $22,283  $(1,819) $(1,037) $811 

Class A and Class B Common Stock

The relative rights, preferences and limitations of the Company'sCompany’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.

Page 1422 of 2838
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.

During the nine months ended April 27, 2019, holders of 82,008 shares of Class B common stock converted their shares to Class A common stock and the Company converted 64,801 shares of Class B common stock held in treasury to 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 paid $1.7 million of cash dividends during the nine months ended April 28, 201827, 2019 and April 29, 2017,28, 2018, approximately half of which were dividends declared during the nine months ended April 28, 2018 and April 29, 2017, with the remainder representing dividends declared and accrued in prior periods.

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 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 three or nine months ended April 28, 201827, 2019 or the three or nine months ended April 2928, 2018, 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 additionalheld an 87.88% ownership interest in any ofLowham-Walsh Engineering & Environmental 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 nine months ended April 28, 2018 or April 29, 2017.ownership interest in Lowham to 100%.

Accumulated Other Comprehensive Loss

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

Balance at 
April 28,
2018
  
July 31,
2017
  
April 27,
2019
  
July 31,
2018
 
(in thousands)  (in thousands) 
            
Unrealized net foreign currency translation losses $(1,912) $(2,033) 
$
(1,879
)
 
$
(1,880
)
Unrealized net investment (losses) gains on available for sale investments  (11)  15   
---
   
(5
)
Total accumulated other comprehensive loss $(1,923) $(2,018) 
$
(1,879
)
 
$
(1,885
)

Page 1523 of 3238
13.12.
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.

  Three Months Ended  Nine Months Ended 
  
April 28,
2018
  
April 29,
2017
  
April 28,
2018
  
April 29,
2017
 
  (in thousands, except share and per share amounts) 
             
Net income (loss) attributable to Ecology and Environment, Inc. $164  $252  $(71) $822 
Dividends declared  (860)  ---   (860)  (859)
Undistributed earnings (distributions in excess of earnings) $(696) $252  $(931) $(37)
                 
Weighted-average common shares outstanding - basic and diluted  4,301,604   4,294,102   4,301,604   4,293,646 
                 
Distributed earnings per share - basic and diluted $0.20  $---  $0.20  $0.20 
Undistributed earnings (distributions in excess of earnings) per share - basic and diluted  (0.16)  0.06   (0.22)  (0.01)
Net income (loss) per common share - basic and diluted $0.04  $0.06  $(0.02) $0.19 
  Three Months Ended  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
  (in thousands, except share and per share amounts) 
             
Net (loss) income attributable to Ecology and Environment Inc. $(1,030) $69  $(1,459) $138 
Dividends declared
  (864)  (860)  (864)  (860)
Distributions in excess of earnings $(1,894) $(791) $(2,323) $(722)
                 
Weighted-average common shares outstanding - basic and diluted
  4,315,135   4,301,604   4,314,742   4,301,604 
                 
Distributed earnings per share - basic and diluted
 $0.20  $0.20  $0.20  $0.20 
Distributions in excess of earnings per share - basic and diluted
  (0.44)  (0.18)  (0.54)  (0.17)
Net (loss) income per common share - basic and diluted
 $(0.24) $0.02  $(0.34) $0.03 

14.13.
Segment Reporting

The Company reports segment informationManagement generally assesses operating performance and makes strategic decisions based on the geographic location ofregions 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 reporting segment is summarized in the following table.

  Three Months Ended  Nine Months Ended 
  April 28, 2018  April 29, 2017  April 28, 2018  April 29, 2017 
  (in thousands) 
             
EEI and its subsidiaries located in the U.S. $16,789  $18,394  $53,535  $57,660 
                 
Subsidiaries located in South America:                
Peru  1,655   1,704   7,344   4,441 
Chile  2,828   1,642   8,070   5,699 
Brazil  2,317   2,231   6,713   6,069 
Other  139   81   230   225 
   6,939   5,658   22,357   16,434 
                 
Total revenue, net $23,728  $24,052  $75,892  $74,094 

Long-livedtotal assets by reportingoperating segment are summarized in the following table.tables.

  Balance at 
  
April 28,
2018
  
July 31,
2017
 
  (in thousands) 
       
EEI and its subsidiaries located in the United States $2,929  $3,293 
Subsidiaries located in South America  1,384   1,135 
  Three Months Ended  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
  (in thousands) 
Gross revenue:            
U.S. operations 
$
16,934  
$
16,566
  
$
51,250  
$
53,784
 
South American operations  4,841   
4,111
   12,530   
14,287
 
Total 
$
21,775  
$
20,677
  
$
63,780  
$
68,071
 

Gross revenue from U.S. federal government contracts was $3.2 million and $3.9 million for the three months ended April 27, 2019 and April 28, 2018, respectively, and $9.2 million and $11.9 million for the nine months ended April 27, 2019 and April 28, 2018, respectively.

Page 1624 of 2838
  Three Months Ended  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
  (in thousands) 
Net income (loss) attributable to EEI:            
U.S. operations (a)
 $(1,136) $(186) $(1,538) $(362)
South American operations (b)
  106   255   79   500 
Total $(1,030) $69  $(1,459) $138 

15.
(a)Includes depreciation and amortization expense of $0.2 million for the three months ended April 27, 2019 and April 28, 2018, and $0.5 million for the nine months ended April 27, 2019 and April 28, 2018.

(b)Includes depreciation and amortization expense of $0.1 million three months ended April 27, 2019 and April 28, 2018, and $0.3 million and $0.2 million for the nine months ended April 27, 2019 and April 28, 2018, respectively.

  
April 27,
2019
  
July 31,
2018
 
  (in thousands) 
Total assets:
       
U.S. operations
 
$
39,664
  
$
43,823
 
South American operations
  
8,405
   
9,006
 
Total
 
$
48,069
  
$
52,829
 

14.
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 Ltdabrasil 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 520,000approximately 0.5 million Reais against E&E Brasil.Brazil.   The Institute also filed Notices of Infraction against four employees of E&E BrasilBrazil alleging the same claims and imposed fines against those individuals that, in the aggregate, were equal to the fine imposed against E&E Brasil.  Including additional amounts calculated in accordance with government and court economic indices, these aggregate claims total approximately 2.4 million Reais ($0.7 million) as of April 28, 2018.Brazil.  No claim has been made against EEI.

E&E BrasilBrazil 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 BrasilBrazil 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 BrasilBrazil are pending agency determination.  At April 28, 2018,27, 2019, the Company maintainedrecorded a reserve of approximately $0.4 million in other accrued liabilities related to these claims.

Contract Termination Provisions

Certain contracts contain termination provisions under which the customer may, without penalty, terminate the contracts upon written notice to the Company.  In the event of termination, the Company would be paid only termination costs in accordance with the particular contract.  Generally, termination costs include unpaid costs incurred to date, earned fees and any additional costs directly allocable to the termination.  The Company did not experience early termination of any material contracts during the nine months ended April 28, 2018 or during the fiscal year ended July 31, 2017.
Page 1725 of 2838
Item 2.Management'sManagement’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

We reported a consolidated net loss attributable to EEI of $1.0 million ($0.24 per share) for the quarter ended April 27, 2019, compared with consolidated net income attributable to EEI of $0.1 million ($0.02 per share) for the third quarter of the prior fiscal year.  For the nine months ended April 27, 2019, we reported a consolidated net loss attributable to EEI of $1.5 million ($0.34 per share), compared with consolidated net income attributable to EEI of $0.1 million ($0.03 per share) for the first nine months of the prior year.

Our operating results for the three months and nine months ended April 27, 2019 were significantly impacted by $0.8 million of employee severance costs and $0.9 million of incremental expenses associated with restatements of our prior year consolidated financial statements.  These incremental expenses are described more fully below in commentary related to our results of operations.

Management generally assesses operating performance and makes strategic decisions based on the geographic regions in which we do business.  We report separate operating segment information for our United States (“U.S.”) and South American operations.  Our active subsidiaries during the nine months ended April 27, 2019 are listed in the following table.

Name
Percentage of
Subsidiary
Capital Stock
Owned by the
Company
Operating
Segment
Consolidated Subsidiaries:
Ecology & Environment Engineering, Inc.100.00%United States
Walsh Environmental, LLC100.00%United States
Gustavson Associates, LLC83.60%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
Majority-Owned Equity Investment:
Gestión Ambiental Consultores S.A. (“GAC”) (b)
52.48%South America


(a)
The Company’s investment in Walsh Ecuador was sold to minority shareholders effective February 1, 2019. The sale of Walsh Ecuador is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows for future reporting periods.

(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.

Net (loss) income by operating segment is summarized in the following table.

  Three Months Ended  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
  (in thousands) 
Net (loss) income attributable to EEI:            
U.S. operations $(1,136) $(186) $(1,538) $(362)
South American operations  106   255   79   500 
Consolidated net (loss) income $(1,030) $69  $(1,459) $138 

Page 26 of 38
The Company reported consolidated income of $0.04 per sharefollowing table includes selected financial information by operating segment for the three months ended April 28, 2018, $0.02 lower than the $0.06 per share reported for the same quarter last year.  A consolidated loss of $0.02 per share for the nine months ended27, 2019 and April 28, 2018 was $0.21 lower than income(the third quarters of $0.19 per share reported for the prior year.  Lower revenuesfiscal years 2019 and net income and higher indirect costs from our U.S. operations 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 first nine months of the fiscal year 2018.  Specific impacts of the Tax Act are summarized in Note 9 of the accompanying condensed consolidated financial statements.

Prior to the Company’s Annual Meeting of Shareholders held in April 2017, a significant Class A shareholder decided to contest the Company’s two nominees for Class A directors.  As a result of the ensuing election contest, which was settled amicably among the parties prior to the Annual Meeting of Shareholders, the Company recorded legal and consulting expenses of approximately $0.6 million that, net of taxes, effectively reduced earnings by $0.08 per share during the three and nine months ended April 29, 2017.

Reportable segments have been determined based on internal profitability reporting, which is based on the geographic location of our parent company and subsidiary operations.  The following tables include selected financial information by reporting segment for the three and nine months ended April 28, 2018, and April 29, 2017.respectively).  Refer to “Results of Operations” below for furtheradditional commentary regarding the Company’s revenues and expenses for these reporting periods.

  Three Months Ended
  
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
  ($ in thousands)
U.S. operations:            
Gross revenue $16,934  
$
16,566
  
$
368
   2
%
Gross revenue less subcontract costs  14,839   
14,725
   
114
   
1
%
Cost of professional services and other direct operating expenses  6,773   
6,438
   
335
   
5
%
Gross margin  8,066   
8,287
   
(221
)
  
(3
)%
Selling, general and administrative expenses  8,780   
8,440
   
340
   
(113
)%
                 
South American operations:                
Gross revenue $4,841  
$
4,111
  
$
730
   
18
%
Gross revenue less subcontract costs  3,944   
3,312
   
632
   
19
%
Cost of professional services and other direct operating expenses  2,037   
1,472
   
565
   
38
%
Gross margin  1,907   
1,840
   
67
   
4
%
Selling, general and administrative expenses  1,724   
1,509
   
215
   14
%
Income from equity method investment  64   
137
   
(73
)
  (53)%
                 
Consolidated totals:                
Gross revenue $21,775  
$
20,677
  
$
1,098
   
5
%
Gross revenue less subcontract costs  18,783   
18,037
   
746
   
4
%
Cost of professional services and other direct operating expenses  8,810   
7,910
   
900
   
11
%
Gross margin  9,973   
10,127
   
(154
)
  (2)%
Selling, general and administrative expenses  10,504   
9,949
   
555
   6
%
Income from equity method investment  64   
137
   
(73
)
  (53)%

  Nine Months Ended
  
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
  ($ in thousands)
U.S. operations:            
Gross revenue $51,250  
$
53,784
  
$
(2,534
)
  
(5
)%
Gross revenue less subcontract costs  42,440   
44,491
   
(2,051
)
  
(5
)%
Cost of professional services and other direct operating expenses  19,414   
19,850
   
(436
)
  
(2
)%
Gross margin  23,026   
24,641
   
(1,615
)
  
(7
)%
Selling, general and administrative expenses  24,453   
24,496
   
(43
)
  ---
%
                 
South American operations:                
Gross revenue $12,530  
$
14,287
  
$
(1,757
)
  
(12
)%
Gross revenue less subcontract costs  10,155   
10,162
   
(7
)
  ---
%
Cost of professional services and other direct operating expenses  5,304   
4,644
   
660
   
14
%
Gross margin  4,851   
5,518
   
(667
)
  
(12
)%
Selling, general and administrative expenses  4,703   
4,717
   
(14
)
  ---
%
Income from equity method investment  295   
376
   
(81
)
  (22)%
                 
Consolidated totals:                
Gross revenue $63,780  
$
68,071
  
$
(4,291
)
  
(6
)%
Gross revenue less subcontract costs  52,595   
54,653
   
(2,058
)
  
(4
)%
Cost of professional services and other direct operating expenses  24,718   
24,494
   
224
   
1
%
Gross margin  27,877   
30,159
   
(2,282
)
  
(8
)%
Selling, general and administrative expenses  29,156   
29,213
   
(57
)
  ---
%
Income from equity method investment  295   
376
   
(81
)
  
(22
)%

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, consolidated gross margin decreased to 45.8% for the three and nine months ended April 28, 2018.27, 2019 from 49.0% for the same period of the prior year, due mainly to a higher percentage of consolidated gross revenue being generated from South American operations.

  Three Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
  ($ in thousands) 
             
EEI and subsidiaries located in the United States:            
Revenue, net $16,789  $18,394  $(1,605)  (9)%
Revenue, net less subcontract costs (1)  14,736   16,190   (1,454)  (9)%
Direct operating expenses (2)  6,438   7,054   (616)  (9)%
Indirect operating expenses (3)  8,439   7,836   603   8%
(Loss) income before income tax provision  (324)  486   (810)  (167)%
Net (loss) income attributable to EEI  (272)  260   (532)  (205)%
                 
Subsidiaries located in South America:                
Revenue, net $6,939  $5,658  $1,281   23%
Revenue, net less subcontract costs (1)  5,407   4,604   803   17%
Direct operating expenses (2)  2,355   2,292   63   3%
Indirect operating expenses (3)  2,261   2,217   44   2%
Income before income tax provision  774   24   750   ---(4)
Net income (loss) attributable to EEI  436   (8)  444   ---(4)
                 
Consolidated totals:                
Revenue, net $23,728  $24,052  $(324)  (1)%
Revenue, net less subcontract costs (1)  20,143   20,794   (651)  (3)%
Direct operating expenses (2)  8,793   9,346   (553)  (6)%
Indirect operating expenses (3)  10,700   10,053   647   6%
Income before income tax provision  450   510   (60)  (12)%
Net income attributable to EEI  164   252   (88)  (35)%

(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 insignificant or negative.
Page 1827 of 28
  Nine Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
  ($ in thousands) 
             
EEI and subsidiaries located in the United States:            
Revenue, net $53,535  $57,660  $(4,125)  (7)%
Revenue, net less subcontract costs (1)  44,502   49,107   (4,605)  (9)%
Direct operating expenses (2)  19,851   21,399   (1,548)  (7)%
Indirect operating expenses (3)  24,497   23,845   652   3%
(Loss) income before income tax provision  (599)  2,377   (2,976)  (125)%
Net (loss) income attributable to EEI  (990)  1,359   (2,349)  (173)%
                 
Subsidiaries located in South America:                
Revenue, net $22,357  $16,434  $5,923   36%
Revenue, net less subcontract costs (1)  16,308   12,371   3,937   32%
Direct operating expenses (2)  7,501   6,388   1,113   17%
Indirect operating expenses (3)  6,941   6,276   665   11%
Income (loss) before income tax provision  1,855   (283)  2,138   ---(4)
Net income (loss) attributable to EEI 919  (537)  1,456   ---(4)
                 
Consolidated totals:                
Revenue, net $75,892  $74,094  $1,798   2%
Revenue, net less subcontract costs (1)  60,810   61,478   (668)  (1)%
Direct operating expenses (2)  27,352   27,787   (435)  (2)%
Indirect operating expenses (3)  31,438   30,121   1,317   4%
Income before income tax provision  1,256   2,094   (838)  (40)%
Net income attributable to EEI  (71)  822   (893)  (109)%
(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 $2.1 million during the first nine months of fiscal year 2018.  Excluding payment of $1.7 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 $3.8 million during the period.

We maintain $40.1 million of unsecured lines of credit available for working capital and letters of credit as of April 28, 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.  There were no cash advances under our lines of credit as of April 28, 2018.  Letters of credit of $2.3 million were outstanding under our lines of credit as of April 28, 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 these 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 $0.8 million of dividends from foreign subsidiaries, net of local taxes, during the nine months ended April 28, 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 $0.3 million was paid to minority shareholders and $0.4 million was repatriated to the U.S., net of local taxes, as of April 28, 2018.  As of April 28, 2018, management anticipates that these dividends payable will be paid within one year.
Page 19 of 28
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 are summarized in the following table.

 Balance at April 28, 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. $18,258  $555  $25,528  $797 
Subsidiaries located in South America  10,738   1,138   11,704   1,328 
Totals $28,996  $1,693  $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.

The allowance for doubtful accounts and contract adjustments for the Company’s South American subsidiaries represented 11% of related contract receivables at April 28, 2018 and July 31, 2017.  During the first nine months of fiscal year 2018, unstable local economies continued to adversely impact certain of the Company’s South American clients, resulting in increased collection risks and the Company incurring project costs that it may not recover for several months.  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 reporting segment in the following table.

  Amount as of 
  
April 28,
2018
  
July 31,
2017
  
April 29,
2017
 
  (in thousands) 
          
Total firm backlog of uncompleted contracts:         
EEI and its subsidiaries located in the United States $63,725  $71,642  $64,624 
Subsidiaries located in South America  16,790   20,744   21,393 
Consolidated totals $80,515  $92,386  $86,017 
             
Anticipated completion of firm backlog in next twelve months:            
EEI and its subsidiaries located in the United States $40,315  $38,814  $34,294 
Subsidiaries located in South America  12,713   14,660   15,626 
Consolidated totals $53,028  $53,474  $49,920 
Page 20 of 2838
Results of Operations

Gross Revenue netand Gross Revenue less Subcontract Costs

Substantially all of the Company'sGross 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 workcontract type 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 TypeWork TypeRevenue Recognition Policy
Time and materialsConsultingAs incurred at contract rates.
Fixed priceConsultingPercentage 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-plusConsultingCosts 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.

Revenue, net associated with these contract types are summarized in the following table.

 Three Months Ended  Nine Months Ended  Three Months Ended  Nine Months Ended 
 
April 28,
2018
  
April 29,
2017
  
April 28,
2018
  
April 29,
2017
  
April 27,
2019
  
April 28,
2018
(Restated)
  
April 27,
2019
  
April 28,
2018
(Restated)
 
 (in thousands)  (in thousands) 
               
Time and materials $10,162  $12,288  $29,356  $34,935  $10,712  $10,000  $29,610  $28,765 
Fixed price  10,151   8,969   31,960   28,277  7,715  7,398  22,054  24,684 
Cost-plus  3,415   2,795   14,576   10,882   3,348   3,279   12,116   14,622 
Total revenue, net $23,728  $24,052  $75,892  $74,094 
Consolidated gross revenue $21,775  $20,677  $63,780  $68,071 

Revenue, net andGross revenue less subcontract costs is a key metric utilized by business entity, aremanagement 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.

  Three Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
  ($ in thousands) 
Revenue, net by reporting segment:
            
EEI and subsidiaries located in the U.S. $16,789  $18,394  $(1,605)  (9)%
                 
Subsidiaries located in South America:                
Peru  1,655   1,704   (49)  (3)%
Chile  2,828   1,642   1,186   72%
Brazil  2,317   2,231   86   4%
Other  139   81   58   ---(1)
   6,939   5,658   1,281   23%
                 
Total revenue, net $23,728  $24,052  $(324)  (1)%
  Three Months Ended 
Operating Segment 
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
 
  ($ in thousands) 
    
U.S. operations $14,839  $14,725  $114   1%
                 
South American operations:                
Chile  973   1,218   (245)  (20)%
Brazil  2,971   2,062   909   44%
Other  ---   32   (32)  (100)%
Total South American operations  3,944   3,312   632   19%
                 
Consolidated gross revenue less subcontract costs $18,783  $18,037  $746   4%

Revenue, net less subcontract costs, by reporting segment:
            
EEI and subsidiaries located in the U.S. $14,736  $16,190  $(1,454)  (9)%
                 
Subsidiaries located in South America:                
Peru  1,218   1,250   (32)  (3)%
Chile  2,095   1,447   648   45%
Brazil  2,062   1,834   228   12%
Other  32   73   (41)  ---(1)
   5,407   4,604   803   17%
                 
Total revenue, net less subcontract costs $20,143  $20,794  $(651)  (3)%
  Nine Months Ended 
Operating Segment 
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
 
  ($ in thousands) 
    
U.S. operations $42,440  $44,491  $(2,051
)
  (5)%
                 
South American operations:                
Peru  2,968   4,472   (1,504
)
  (34)%
Brazil  7,195   5,615   1,580   28%
Other  (8)  75   (83
)
  ---(a)
Total South American operations  10,155   10,162   (7
)
  ---%
                 
Consolidated gross revenue less subcontract costs $52,595  $54,653  $(2,058
)
  (4)%

Page 21 of 28
  Nine Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
  ($ in thousands) 
Revenue, net by reporting segment:
            
EEI and subsidiaries located in the U.S. $53,535  $57,660  $(4,125)  (7)%
                 
Subsidiaries located in South America:                
Peru  7,344   4,441   2,903   65%
Chile  8,070   5,699   2,371   42%
Brazil  6,713   6,069   644   11%
Other  230   225   5   ---(1)
   22,357   16,434   5,923   36%
                 
Total revenue, net $75,892  $74,094  $1,798   2%
Revenue, net less subcontract costs, by reporting segment:
            
EEI and subsidiaries located in the U.S. $44,502  $49,107  $(4,605)  (9)%
                 
Subsidiaries located in South America:                
Peru  4,472   2,901   1,571   54%
Chile  6,146   4,463   1,683   38%
Brazil  5,615   4,808   807   17%
Other  75   199   (124)  ---(1)
   16,308   12,371   3,937   32%
                 
Total revenue, net less subcontract costs $60,810  $61,478  $(668)  (1)%


(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.

Page 28 of 38
Consolidated revenues decreased slightlyincreased 4% during the currentthird quarter and the first nine months of fiscal year 2018, as lower revenues from U.S. operations were offset2019, driven mainly by significantly higher revenues from subsidiary operations in South America.

EEI and Subsidiaries Located in  Consolidated revenues decreased 4% for the U.S.

The Company records an allowance for project disallowances in other accrued liabilities for potential disallowances resulting from government audits.  During thefirst nine months ended April 29, 2017, as a result of final settlements of projects completed in prior years, the Company reduced its allowance for project disallowances by $1.1 million, which was recorded as an addition2019, mainly due to revenue, net on the consolidated statement of operations.  We did not record any similar adjustments during the nine months ended April 28, 2018.

Excluding the impact of the above settlement adjustments,lower revenues from U.S. operations.

U.S. Operations

Revenue from U.S. operations decreased 9%increased 1% during the currentthird quarter and decreased 7%5% during the first nine months of fiscal year 2019 compared with the same periods of the prior fiscal year.

During the third quarter and first nine months of 2019, the Company experienced continued revenue growth from survey, impact assessment, planning and data management services provided to clients in the LNG, offshore resources and resilient communities markets.  However, for the first nine months of 2019, this revenue growth was more than offset by decreases in revenue from the pipeline, onshore renewables, armed services and site assessment and remediation markets, as projects completed during fiscal year 2018 and the first and second quarters of fiscal year 2019 were not replaced with new work of comparable size.  In addition, the federal government shutdown that occurred during the second quarter of fiscal year 2019 delayed new work authorizations, affected ongoing project schedules and postponed revenue delivery on various federal government contracts into the third quarter of fiscal year 2019.

South American Operations

Revenue from our Brazilian operations increased 44% and 28% during the third quarter and first nine months of fiscal year 2019, respectively, compared with the same periods of the prior year.  Lower revenues were primarily due to lower project activity resulting from the following factors:
·We have experienced a trend of longer periods being required by various prospective commercial and federal clients to make contract award decisions;
·We have also experienced a trend of longer periods being required by certain current clients to fund projects, define project scopes and schedule project work; and

Subsidiaries Located in South America

Higher revenuesIn local currency, revenue from our Brazilian operations resulted fromincreased 62% for the third quarter and 47% for the first nine months of 2019 due mainly to increased project activityvolumes with commercial clients in the transmission, energy transmission and windmining sectors.  An economic downturn that adversely affected ourStrengthening of the U.S. dollar compared to the Brazilian operations for several previous reporting periods stabilizedReal during fiscal year 2017 and the first nine months of fiscal year 2018, resulting in additional business development opportunities.  The mix2019 significantly offset the positive impact of contract work along with changes inhigher project volumes.

Revenue from our pricing strategy generated a higher average selling rate forPeruvian operations decreased 20% and 34% during the third quarter and first nine months of thisfiscal year as2019, respectively, compared towith the same period last year.
Page 22periods of 28
Higher revenues from our Peruvian operations resulted from increasedthe prior year, due to lower project activity withinvolumes with commercial clients in the energy sector.  Increases in mineral prices, gas demand and private and public investments in energy projects each contributed to strong revenue growth in Peru.

Higher revenues from our Chilean operations were due to increased project activity within the transmission, industrialCost of Professional Services and mining sectors.  Improved mineral prices continued to result in additional project opportunities during fiscal year 2018.

EEI and local subsidiary management continue to develop business development strategies that are responsive to local economic conditions while also providing synergies with the Company’s overall market development strategies.

Other Direct Operating Expenses

The costCost of professional services and other direct operating expenses represents labor and other direct costs of providing services to our clients under our project agreements.  We refer to these expenses as “direct operating expenses.”  These costs, and fluctuations in these costs, generally resultcorrelate directly fromwith related project work volumes and revenues.  DirectCost of professional services and other direct operating expenses by reportingoperating segment are summarized in the following tables.

  Three Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
 ($ in thousands) 
             
EEI and subsidiaries located in the U.S. $6,438  $7,054  $(616)  (9) %
                 
Subsidiaries located in South America:                
Peru  425   412   13   3%
Chile  883   716   167   23%
Brazil  1,025   1,106   (81)  (7)%
Other  22   58   (36)  ---(1)
   2,355   2,292   63   3%
                 
Total direct operating expenses $8,793  $9,346  $(553)  (6)%
  Three Months Ended 
Operating Segment 
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
 
  ($ in thousands) 
    
U.S. operations $6,773  $6,438  $335   5%
                 
South American operations:                
Peru  385   425   (40)  (9)%
Brazil  1,652   1,025   627   61%
Other  ---   22   (22)  (100)%
Total South American operations  2,037   1,472   565   38%
                 
Consolidated cost of professional services and other direct operating expenses $8,810  $7,910  $900   11
%

  Nine Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
  ($ in thousands) 
             
EEI and subsidiaries located in the U.S. $19,851  $21,399  $(1,548)  (7) %
                 
Subsidiaries located in South America:                
Peru  1,513   936   577   62%
Chile  2,857   2,140   717   34%
Brazil  3,080   3,179   (99)  (3) %
Other  51   133   (82)  ---(1)
   7,501   6,388   1,113   17%
                 
Total direct operating expenses $27,352  $27,787  $(435)  (2)%
Page 29 of 38
  Nine Months Ended 
Operating Segment 
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
 
   ($ in thousands)    
             
U.S. operations $19,414  $19,850  $(436)  (2)%
                 
South American operations:                
Peru  1,104   1,513   (409)  (27)%
Brazil  4,179   3,080   1,099   36%
Other  21   51   (30)  ---
(a)
Total South American operations  5,304   4,644   660   14%
                 
Consolidated cost of professional services and other direct operating expenses $24,718  $24,494  $224   1
%


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

Consolidated Cost of professional services and other direct operating expenses increased 11% and decreased 6% and 2%1% during the currentthird quarter and first nine months of fiscal year 2018,2019, respectively, as compared with the same periods lastof the prior year.  HigherDuring the three and nine months ended April 27, 2019, fluctuations in direct costs in ourfor U.S. and South American operations, were more than offset by lower costs in the U.S.  Thesegenerally corresponded with fluctuations in direct operating expenses generally correspond with increases or decreases in project revenues.revenue.

Indirect OperatingSelling, General and Administrative Expenses

AdministrativeSelling, general and indirect operatingadministrative expenses and marketing and related costs represent administrative and other operating costs not directly associated with the generation of revenue.  We refer to these costs as “indirect operating expenses.”  Indirect operatingSelling, general and administrative expenses by reportingoperating segment are summarized in the following tables.

  Three Months Ended 
Operating Segment 
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
 
   ($ in thousands)    
             
U.S. operations $8,780  $8,440  $340   4%
                 
South American operations:                
Peru  744   713   31   4%
Brazil  980   780   200   26%
Other  ---   16   (16)  (100)%
Total South American operations  1,724   1,509   215   14%
                 
Consolidated selling, general and administrative expenses $10,504  $9,949  $555   6%

  Nine Months Ended 
Operating Segment 
April 27,
2019
  
April 28,
2018
(Restated)
  
$
Change
  
%
Change
 
   ($ in thousands)    
             
U.S. operations $24,453  $24,496  $(43)  ---%
                 
South American operations:                
Peru  2,137   2,373   (236)  (10)%
Brazil  2,489   2,287   202   9%
Other  77   57   20   ---
(a)
Total South American operations  4,703   4,717   (14)  ---%
                 
Consolidated selling, general and administrative expenses $29,156  $29,213  $(57)  ---%

Page 23 of 28
  Three Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
  ($ in thousands) 
             
EEI and subsidiaries located in the U.S. $8,439  $7,836  $603   8%
                 
Subsidiaries located in South America:                
Peru  713   757   (44)  (6)%
Chile  752   707   45   6%
Brazil  780   696   84   12%
Other  16   57   (41)  ---(1)
   2,261   2,217   44   2%
                 
Total indirect operating expenses $10,700  $10,053  $647   6%

  Nine Months Ended 
  
April 28,
2018
  
April 29,
2017
  
$
Change
  
%
Change
 
  ($ in thousands) 
             
EEI and subsidiaries located in the U.S. $24,497  $23,845  $652   3%
                 
Subsidiaries located in South America:                
Peru  2,373   2,504   (131)  (5)%
Chile  2,224   1,822   402   22%
Brazil  2,287   1,814   473   26%
Other  57   136   (79)  ---(1)
   6,941   6,276   665   11%
                 
Total indirect operating expenses $31,438  $30,121  $1,317   4%


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

Subsidiaries Located in the
Page 30 of 38
U.S. Operations

Indirect operatingSelling, general and administrative expenses in our U.S operations were 8% and 3% higher increased 4% during the third quarter and were relatively unchanged during first nine months of fiscal year 2018, as2019 compared with the same periods lastof the prior year.  Business development

In December 2018, the Company began to notify 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 connection with a corporate restructuring plan.  These initiatives were substantially completed by April 27, 2019 and are expected to be completed by July 31, 2019. Company management anticipates that the 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.  The Company recorded approximately $0.8 million of pre-tax charges and cash expenditures related to the Staff Reduction Programs, consisting primarily of employee severance and termination benefits, during the three months ended April 27, 2019.

As described in Note 2 of the accompanying condensed consolidated financial statements, the Company restated its audited consolidated financial statements for the fiscal years ended July 31, 2016 and 2017 and unaudited condensed consolidated financial statements for the quarters ended October 28, 2017, January 27, 2018 and April 27, 2018.  Financial data included in tables and various accounting policies and commentaries included in the Delinquent Reports were also restated or otherwise revised.  These restatements required extensive internal and external resources to complete, including significant incremental fees paid to the Company’s independent auditors, tax consultants and external legal counsel.  The Company recorded incremental audit, tax and legal expenses were significantly higher throughoutof $0.9 million as a result of these restatements during the nine months ended April 27, 2019, $0.6 million of which was recorded during the three months ended April 27, 2019.

Excluding the incremental expenses associated with employee severance costs and restatements of financial statements described above, selling, general and administrative expenses from our U.S. operations decreased $1.0 million (12%) and $1.7 million (7%) during the three and nine months ended April 27, 2019 compared with the same periods of the prior year.  These decreases primarily resulted from a concerted effort by management to reduce operating expenses, including initial impacts of the Staff Reduction Programs described above.

South American Operations

Selling, general and administrative expenses in our Peruvian operations increased 4% for the third quarter and decreased 10% for the first nine months of fiscal year 2018 due2019, respectively, compared with the same periods of the prior year.  Management implemented targeted cost reductions in response to focus on specific expanded marketing initiativeslower project volumes and proposal activity.  Higher business development relatedlower expectations for future work.

Selling, general and administrative expenses in our Brazilian operations increased 26% and 9% during the third quarter and the first nine months of fiscal year 2018 were partially offset by:
·Lower bad debt expenses, primarily due to reversal of specific reserves that had been recorded during the prior fiscal year; and
·Lower cash bonus expense resulting from lower earnings during fiscal year 2018.

Subsidiaries Located in South America

Indirect operating expenses in our South American operations were 2% and 11% higher during the third quarter and first nine months of fiscal year 2018,2019, respectively, as compared with the same periods lastof the prior year.  The increase in indirect operating expenses for fiscal 2018 is mainly attributedIn local currency, staff and other costs increased 28% during the first nine months of 2019 due to increased bonus expense resulting from more profitable operationsproject proposal activity and net changes in foreign exchange rates asincreased general and administrative costs to support higher project volumes and expanded operations.  Strengthening of the U.S. dollar compared to the prior year.Brazilian Real significantly offset the increases in expenses due to expanded operations.

Income from Equity Method Investment

The Company’s equity method investment in GAC had a carrying value of $2.4 million and $2.1 million at April 27, 2019 and July 31, 2018, respectively.  In April 2019, GAC issued additional shares to two of its senior employees, which effectively reduced the Company’s ownership percentage to 52.48% as of April 27, 2019 from 55.10% at July 31, 2018.

Page 31 of 38
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 nine months ended April 27, 2019 and April 28, 2018 is summarized in the following table.

  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
(Restated)
 
  (in thousands) 
    
Equity investment carrying value at beginning of period $2,058  $1,464 
GAC net income attributable to EEI  295   376 
Dividends declared and paid during the period  (348)  --- 
Equity investment carrying value at end of period $2,005  $1,840 

The results of GAC’s operations for the nine months ended April 27, 2019 and April 28, 2018 are summarized in the following table.

  Nine Months Ended 
  
April 27,
2019
  
April 28,
2018
 
  (in thousands) 
       
Gross revenue
 
$
9,456
  
$
8,095
 
Direct cost of services and subcontract costs
  
6,053
   
4,781
 
Income from operations
  
775
   
951
 
Net income
  
538
   
681
 
Net income attributable to EEI
  
295
   
376
 

Income Taxes

TheDuring interim reporting periods, the effective tax rate may be impacted by changes in the mix of forecasted pre-tax income or losses from the U.S. and foreign jurisdictions where we operate, 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.

Our estimated effective tax rate was 63.5% and 63.0%decreased to 17.5% for the nine months ended April 27, 2019 from 46.2% for the nine months ended April 28,, 2018 and 2018. Unfavorable permanent adjustments related to forecasted losses in the U.S. resulted in an effective tax rate that was lower than the statutory rate for the nine months ended April 29, 2017, respectively.

27, 2019. The decrease in the estimated effective tax rate for the nine months ended April 28, 2018 includes27, 2019 resulted mainly from changes in the effectpre-tax earnings of our U.S. operations in the enactmentcurrent fiscal year and from the impact of the Tax Act.  Specific impacts of the Tax Act are summarizedchanges in Note 9 of the accompanying condensed consolidated financial statements.

The changesU.S. corporate income tax regulations included in the Tax Cuts and Jobs Act are broad and complex.  Theenacted in December 2017, which included:

A reduction in the U.S. statutory corporate income tax provision recordedrate to 21% for the nine months ended April 27, 2019, compared with a blended rate of 26% for the nine months ended April 28, 2018 reflects management’s estimates2018.
Certain one-time tax items, including revaluation of deferred tax assets and liabilities and the Tax Act’s impacts.  The Securities and Exchange Commission has issued ruleseffect of a new territorial tax system, that would allowincreased our federal income tax expense by a combined $0.4 million for a measurement period of upthe nine-months ended April 28, 2018.  We did not record any similar or other unusual adjustments to one year after the enactment date of the Tax Act to finalize and record the relatedfederal income tax impacts. Management currently anticipates finalizing and recording any resulting adjustments by the end of the Company’s fiscal year ending July 31, 2018.  The final transition impacts of the Tax Act may differ from these estimates due to, among other things, changes in interpretations of the Tax Act, subsequent legislative action to further revise the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to our estimates utilized to calculate the transition impacts.
Page 24 of 28
The effective tax rate forexpense during the nine months ended April 29, 2017 includes27, 2019.

Liquidity and Capital Resources

Cash, cash equivalents and restricted cash decreased $3.9 million during the taxfirst nine months of fiscal year 2019.  Historically, cash generated from our operating activities has exceeded cash required for investing and financing activities.  However, recent declines in revenue and profits from our U.S. and Peruvian operations have had a detrimental impact on cash generated from operating activities.  In addition, higher revenue from our Brazilian operations during recent reporting periods represented initial resource outlays on new projects that have not yet been billed to and collected from our clients.  Cash outlays resulting from the Staff Reduction Programs and restatements of prior year financial statements also had a detrimental impact on cash flows from operations.  After initial outlays of cash for employee severance and termination benefits, the Staff Reduction Programs are expected to have a positive impact on our earnings and liquidity position during the fourth quarter of fiscal year 2019 and future reporting periods.

Our Board of Directors considers the approval of dividends to our shareholders based on various operating parameters, including available cash balances, results of current operations and projections of future operating results and cash flows.  Excluding the payment of $1.7 million of dividends to shareholders that our Board of Directors approved on a discretionary basis, cash decreased $2.2 million during the period.

Page 32 of 38
Our U.S. operations had $32.5 million of unsecured lines of credit available to fund working capital requirements.  There were no cash advances and less than $0.1 million of letters of credit outstanding under these lines of credit at April 27, 2019.  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 requirements of our U.S. operations during the next twelve months and the foreseeable future.

Our South American operations had $3.4 million of unsecured lines of credit available to fund working capital requirements.  There were $0.6 million of cash advances and $1.6 million of letters of credit outstanding under these lines of credit at April 27, 2019.  Our lenders have reaffirmed the lines of credit within the past twelve months.  Our South American operations are located in countries where local economies have historically had volatile reactions to changing global and local economic conditions.  There is continual risk that economic uncertainty will have an impact on our operations and liquidity position in South America.  Although we currently believe that available cash balances, anticipated cash flows, and available lines of credit will be sufficient to cover working capital requirements of our South American operations in the near future, economic uncertainty and volatility may challenge our liquidity position in the longer term.  In the event that these subsidiaries are unable to generate adequate cash flow to fund their operations, additional funding from EEI or lending institutions will be considered.

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 Company’sBoards of Directors of the respective entities.  The Company repatriated $0.2 million of dividends from foreign subsidiaries, net of local taxes, during the first quarter of fiscal year 2019.

The Tax Act resulted in a one-time transition tax on deemed repatriation of historical earnings of foreign subsidiaries of approximately $0.5 million, which will be paid, without incurring interest, by July 31, 2019.

Contract Backlog

Firm backlog represents an estimate of gross revenue that will be recognized over the remaining life of the projects under contracts that are awarded, funded and in progress.  These projects include work to be performed under contracts which contain termination provisions that may be exercised without penalty at any time by our clients upon written notice to us, in which case the client would only be obligated to pay us for services provided through the termination date.  A significant portion of dividends declaredour revenue is generated through projects awarded under Master Service Agreements with our clients.  In these instances, only the current unfinished projects are included in our backlog.

During fiscal year 2019, the Company revised its methodology for determining the contract values to be included in firm backlog.  Under this revised methodology, certain backlog amounts that previously were classified and reported as firm backlog are now reported as soft backlog (as defined below).  For comparative purposes, management recalculated firm backlog retroactively as of April 28, 2018 using project funding data contemporaneous with that reporting period and other project status information known at the time.   Although management believes that the data are generally comparable by its majority owned subsidiaryusing a more consistent methodology, there can be no assurance that the methodologies are entirely comparable for all backlog balances reported as of April 27, 2019 and April 28, 2018.

Firm backlog by operating segment is summarized in Chilethe following table.

  
April 27,
2019
  
April 28,
2018
  
  (in thousands)
Total firm backlog of uncompleted contracts:           
U.S. operations $35,725  $45,981  (a)
South American operations  14,204   11,479  
Consolidated totals 
$
49,929
  
$
57,460
  
               
Anticipated completion of firm backlog in next twelve months:             
U.S. operations $28,209  $32,934  (a)
South American operations  12,187   9,265  
Consolidated totals 
$
40,395
  
$
42,199
  

(a)In the Company’s Quarterly Report on Form 10-Q filed for the quarterly period ended April 28, 2018, the Company reported firm backlog from U.S. operations of $63.7 million, of which $40.3 million was expected to be completed within the subsequent twelve month period.

Total firm backlog from U.S. operations decreased 22% over the twelve month period preceding April 27, 2019, as new orders reported as additions to firm backlog have not kept pace with work delivered on active projects.  The increase in firm backlog for our South American operations during the twelve months preceding April 27, 2019 was the result of significant new orders that outpaced completion of projects.

In addition to the firm backlog summarized in the table above, we also have been awarded contracts in our U.S. operations that are partially or entirely unfunded, but which are expected to be partially or entirely funded during the remaining life of the associated projects.  Total unfunded backlog approximated $31.5 million and reversal$15.0 million for our U.S. operations at April 27, 2019 and April 28, 2018, respectively.  Until these projects are funded, we cannot be certain regarding the value of a deferred tax asset previously maintained by the Company’s majority owned subsidiary in Peru.gross revenue that we will recognize under these contracts.

Backlog is not a measure defined by generally accepted accounting principles in the United States (“U.S. GAAP”) and is not a measure of profitability. Our method for calculating backlog may not be comparable to methodologies used by other companies.

Page 33 of 38
Critical Accounting Policies and Use of Estimates

The Company'sCompany’s condensed consolidated financial statements presented in Item 1 of this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  On an ongoing basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for doubtful accounts and contract adjustments, income taxes, impairment of long-lived assets and contingencies.  Management bases its estimates and judgments on historical experience and other factors that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  Refer to the

The Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2017 for a description2018 includes descriptions of our critical accounting policies.policies related to revenue recognition, allowance for doubtful accounts, goodwill and income taxes.

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 (“ASC”).  The Company considers the applicability and impact of all ASUs when they are issued by FASB.

Update to Revenue Recognition Accounting Policy

In May 2014, FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”).  ASU 2014-09, as amended by subsequent ASUs that amended and clarified the guidance in ASU 2014-09, forms the basis for FASB ASC Topic 606 (“ASC Topic 606”), which superseded previous authoritative U.S. GAAP guidance regarding revenue recognition.  The Company adopted ASC Topic 606 effective August 1, 2018.  Refer to Notes 3 and 7 of the unaudited condensed consolidated financial statements included in Item 1 of this Form 10-Q for additional disclosures regarding the adoption of ASU 2014-09 and our revenue recognition accounting policy.

Inflation

Inflation did not have a material impact on our business during the nine months ended April 28, 201827, 2019 or April 29, 201728, 2018 because a significant amount of our contracts are either cost based or contain commercial rates for services that are adjusted annually.

Off-Balance Sheet Arrangements

We had outstanding letters of credit drawn under our lines of credit to support operations of $2.3$1.6 million and $2.5$1.7 million at April 28, 201827, 2019 and July 31, 2017,2018, respectively.  Other than these letters of credit, we did not have any off-balance sheet arrangements as of April 28, 201827, 2019 or July 31, 2017.2018.

Item 4.Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange“Securities Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, our management, with the participation of our Acting Principal Executive Officer and Acting Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Exchange Act.  As a consequence of the material weaknesses discussed below, our Acting Principal Executive Officer and Acting Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective at April 27, 2019.

Page 34 of 38
As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2017,2018, management concluded that the Company’s internal control over financial reporting was not effective as of July 31, 2017 due to the fact that there were2018 because of material weaknesses in the Company’s internal control over financial reporting.reporting as described below.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements would not be prevented or detected on a timely basis.  The material weaknesses arise from deficiencies relating to:

Specifically, management identified control deficiencies
determining the appropriate application of accounting standards when assessing whether the Company’s investments in subsidiaries should be consolidated or accounted for under the equity method of accounting;
ascertaining and disclosing the appropriate accounting policies, including the effects of non-standard provisions, for revenue recognition related to the Company’s fixed-price service contracts;
establishing appropriate cutoff procedures for appropriate revenue and expense recognition.

As described in Note 2 of the unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, management determined that an error in accounting for income taxes and management’s review controls over the financial statement close process, particularly controls related to certain non-routine and estimation processes (i.e., the goodwill impairment assessment model) and review controls related to the Company’s intercompany and consolidation process.  Although the deficiencies did not resultEEI’s investment in GAC resulted in a material misstatement of the Company’s consolidated financial statements reported prior to July 31, 2018.  Management identified deficiencies related to determining the appropriate application of accounting when assessing whether the Company’s investments in subsidiaries should be consolidated or accounted for under the equity method of accounting.  Specifically, the deficiencies relate to its process to review all factors necessary to assess its influence and control over the operations of its subsidiaries, and to assess the proper accounting for its investments in subsidiaries.  The financial statements for any of the periods presented in this Form 10-K, management concluded that there was a reasonable possibility that, if any material misstatement had occurred, it would notthree and nine months ended April 28, 2018 have been prevented or detected on a timely basis.restated to correct this error.

Page 25With input from the Audit Committee, management developed, and is in the process of 28
Management has developedimplementing, a remediation plan to address the material weaknesses as of July 31, 2018 noted above.  Specifically, the following controls have been established orand procedures will be established duringor strengthened to address the fiscal year ending July 31, 2018:
·Enhancing management review controls over the financial statement close process to ensure appropriate cutoff for purposes of recording revenues and expenses, and appropriate review of the consolidation process, including intercompany elimination entries;
·Expanding the roles of third-party tax experts for preparation and review of income tax provisions, and development of specific procedures for management to monitor and review the work of third-party tax experts; and
·Developing a process for periodic review of specific key factors and assumptions utilized in the goodwill impairment assessment model to identify changes that potentially could result in goodwill impairment.
material weaknesses:

Management has developed a detailed plan
We will assess our current accounting staff and timetable foridentify the implementation of the foregoing remediation efforts.  Under the direction of the Audit Committee, management will monitor the implementation planneed to train existing staff resources regarding technical accounting topics and continue to review and make necessary changesrelated disclosure requirements that are pertinent to the planCompany’s operations, including those relating to improve the overallconsolidation, equity method and revenue recognition standards.  We will also consider adding new staff resources and/or engaging third-party advisors that have adequate expertise and experience with pertinent U.S. GAAP requirements.
We will assess our policies and processes to determine controls required to appropriately address technical accounting topics and establish cutoff for recognition of revenues and expenses.  Once determined, we will implement any needed enhancements and/or additional procedures and controls.
The design and execution of any new or enhanced controls noted above will be periodically tested by the Company’s internal control environment.Internal Auditor.

As of the end of the period covered by this report, our management, with the participation of our chiefacting principal executive officer and acting chief financial officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 promulgated under the Exchange Act.  Based upon this evaluation, our chiefacting principal executive officer and our acting chief financial officer concluded that, excluding the control deficiencies that resulted in the material weakness described above, our disclosure controls and procedures were: (1) designed to ensure that material information relating to our Company is accumulated and made known to our management, including our chiefacting principal executive officer and acting chief financial officer, in a timely manner, particularly during the period in which this report was being prepared; and (2) effective, in that they provide reasonable assurance that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Management believes, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a Company have been detected.

Internal Controls

Other than certain controls added or improved to address the material weaknessweaknesses described above, no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended April 28, 201827, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Page 2635 of 2838
PART II — OTHER INFORMATION

Item 1.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.  The Company’s legal proceedings are disclosed in Note 1514 of the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Item 2.Changes in Securities and Use of Proceeds

(e)  Purchased Equity Securities.  In August 2010, the Company’s Board of Directors approved a 200,000 share repurchase program.  The following table summarizes the Company’s purchases of its common stock during the nine months ended April 28, 201827, 2019 under this share repurchase program:

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 20172018 --- --- --- 77,082
September 20172018 --- --- --- 77,082
October 20172018 --- --- --- 77,082
November 20172018 --- --- --- 77,082
December 20172018 --- --- --- 77,082
January 20182019 --- --- --- 77,082
February 20182019 --- --- --- 77,082
March 20182019 --- --- --- 77,082
April 20182019 --- --- --- 77,082

Item 3.Defaults Upon Senior Securities

None.

Item 4.Submission of Matters to a Vote of Security Holders

None.

Item 5.Other Information

None.

Item 6.Exhibits and Reports on Form 8-K

(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, 2017September 19, 2018 to announce Mr. H. John Mye III’s intention to retire from his positionthe appointment of the Company’s Chairman of the Board, Marshall A. Heinberg, as Chief Financial OfficerInterim Executive Chairman, and the appointment of Ecology and Environment, Inc., effective six months from the announcement date.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.

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(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.
(e)
The Company filed a Current Report on Form 8-K on December 12, 2018 to announce: (i) development and rollout of an organizational restructuring plan, which includes a reduction of workforce, that is expected to result in $5.0 million to $6.5 million of annual pre-tax cost savings: and (ii) the conclusion reached by the Company’s Audit Committee that the Company’s consolidated financial statements and related reports filed with the Securities and Exchange Commission (the “SEC”) for periods ended prior to July 31, 2018 should no longer be relied upon due to errors related to accounting for an investment in an entity in which the Company holds a majority economic interest.
(f)
The Company filed a Current Report on Form 8-K on December 14, 2018 to announce that the Company had received, as expected, a formal notification from the Listing Qualifications Department of 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 Quarterly Report on Form 10-Q for the period ended October 27, 2018, and because the Company remains delinquent in filing its Annual Report on Form 10-K for the fiscal year ended July 31, 2018.  The Company was given 60 calendar days from the due date for the 2018 Annual Report, or until January 14, 2019, either to file the Delinquent Filings with the SEC or to submit a plan to regain compliance.
(g)
The Company filed a Current Report on Form 8-K on December 16, 2018 to announce that Gerard A. Gallagher III, who served as the Company’s Chief Executive Officer since 2015, was leaving the Company effective December 17, 2018.
(h)
The Company filed a Current Report on Form 8-K on January 16, 2019 to announce that the Company submitted a compliance plan to Nasdaq to support its request for an extension of time to regain compliance with the Nasdaq continued listing requirements.
(i)
The Company filed a Current Report on Form 8-K on February 7, 2019 to announce that the Company received a letter from Nasdaq granting the Company’s request for an exception to Nasdaq Listing Rule 5250(c)(1) (the “Rule”) in order to allow the Company to regain compliance with the Rule.  Under the terms of the exception, the Company must file its outstanding annual and quarterly reports with the SEC, as well as any future delinquent quarterly SEC reports, on or before May 13, 2019.
(j)
The Company filed a Current Report on Form 8-K on March 26, 2019 to announce that the Company had received, as expected, of a formal notification from the Listing Qualifications Department of Nasdaq stating that the Company continues not to be in compliance with the requirements for continued listing under Nasdaq Listing Rule 5250(c)(1) because it did not file its Quarterly Report on Form 10-Q for the period ended January 26, 2019.
(k)
The Company filed a Current Report on Form 8-K on April 13, 20181, 2019 to announce that Peter F. Sorci has been appointed Acting Chief Financial Officer.the Company submitted a letter to Nasdaq reaffirming its intention to take all necessary steps to achieve compliance with Nasdaq continued listing requirements no later than May 13, 2019.
  
(d)
The Company filed a Current Report on Form 8-K on April 23, 201816, 2019 to report submissionannounce that : (i) Fred J. McKosky, Technical Operations Director, declared his intention to retire shortly after the end of matters to a vote of security holders.  At the Company’s Annual Meetingfiscal year ending July 31, 2019; and (ii) Kurt Zmich was promoted to Senior Vice President of Stockholders held onOperations effective April 18, 2018, shareholders: (a) elected two (2) Class A nominees and five (5) Class B nominees for election11, 2019, replacing Mr. McKosky as Directors of the Company; (b) approved, on an advisory basis, the compensation paid to the Company’s Named Executives; and (c) ratifiedprincipal operating officer.
(m)
The Company filed a Current Report on Form 8-K on May 14, 2019 to announce that: (i) the appointment of Ernst & Young LLP as AuditorsCompany was unable to meet the May 13, 2019 extended deadline granted by Nasdaq to file its Annual Report on Form 10-K for the fiscal year 2018.ended July 31, 2018 and its Quarterly Reports on Form 10-Q for the periods ended October 27, 2018 and January 26, 2019; and (ii) the Company’s Chief Administrative Officer, JoAnn Shea, resigned her position effective May 17, 2019.

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(n)
The Company filed a Current Report on Form 8-K on May 16, 2019 to announce that the Company received on May 13, 2019, as expected, a formal determination letter from Nasdaq stating that the Company did not meet the terms of the exception that was previously granted by Nasdaq in order to allow the Company to regain compliance with Nasdaq Listing Rule 5250(c)(1).
(o)
The Company filed a Current Report on Form 8-K on May 20, 2019 to announce that, in response to the May 13, 2019 formal determination letter received from Nasdaq, the Company timely submitted a request for a hearing before the Nasdaq hearings panel, including an additional request for a stay of delisting pending the hearing.  Also on May 20, 2019 the company received a letter from Nasdaq notifying the Company that the Nasdaq hearings panel has scheduled the Company’s hearing for June 27, 2019, and that any delisting action that may be taken by Nasdaq against the Company has been stayed for 15 calendar days, or until June 4, 2019.
(p)
The Company filed a Current Report on Form 8-K on May 31, 2019 to announce that the Company’s Board of Directors took the following actions: (i) the Company’s Re-Stated By-Laws were amended; (ii) independent director Justin C. Jacobs was appointed to the Audit Committee; and (iii) the minimum number of directors was reduced from seven to six.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 Ecology and Environment Inc.
  
Date:     June 12, 201817, 2019By:/s/ Peter F. Sorci
  Peter F. Sorci
  Acting Chief Financial Officer
Principal Financial and Accounting Officer


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