2.	Restatement of Unaudited Condensed Consolidated Financial Statements

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

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

Collectively, the adjustments necessary to deconsolidate GAC’s unaudited financial statements and correctly account for the Company’s investment in GAC under the equity method of accounting are referred to as the “GAC Deconsolidation Adjustments.” For the quarter ended October 28, 2017, the GAC Deconsolidation Adjustments resulted in decreases of $2.1 million and less than $0.1 million in consolidated gross revenue and income before income tax provision, and had no impact on net income attributable to EEI.

In addition to the GAC Deconsolidation Adjustments, previously filed financial statements for the quarter ended October 28, 2017 were also adjusted for correction of other errors in the financial statements and disclosures that were deemed to be immaterial on an individual basis and in the aggregate for the quarter (the “Out of Period Adjustments”). For the quarter ended October 28, 2017, the Out of Period Adjustments resulted in increases of $1.1 million of consolidated gross revenue and $0.1 million of consolidated income before income tax provision and net income attributable to EEI.

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 quarter year ended October 28, 2017, filed with the SEC on December 12, 2017.

Ecology and Environment Inc.

Condensed Consolidated Statement of Operations

(amounts in thousands, except share data)

	Three Months Ended October 28, 2017
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments		Restated

Gross revenue	$	27,082		$	(2,112	)	$	1,135	$	26,105

Direct cost of services		9,480			(862	)		-		8,618
Subcontract costs		5,729			(459	)		1,079		6,349
Selling, general and administrative expenses		10,509			(727	)		-		9,782
Depreciation and amortization		270			(10	)		-		260

Income from operations		1,094			(54	)		56		1,096

Income from equity method investment		-			18			-		18
Net interest income (expense)		(5	)		7			-		2
Net foreign exchange (loss) gain		3			2			-		5

Income before income tax provision		1,092			(27	)		56		1,121
Income tax provision		444			(12	)		1		433

Net income		648			(15	)		55		688

(Income) loss attributable to noncontrolling interests		(115	)		15			-		(100	)

Net income attributable to Ecology and Environment, Inc.	$	533		$	-		$	55	$	588

Net income per common share: basic and diluted	$	0.12							$	0.14

Weignted average common shares outstanding:basic and diluted		4,301,604								4,301,604

Ecology and Environment Inc.

Condensed Consolidated Statement of Comprehensive Income

(amounts in thousands)

	Three Months Ended October 28, 2017
	As Previously Reported			GAC Deconsolidation Adjustments			Out of Period Adjustments		Restated

Net income including noncontrolling interests	$	648		$	(15	)	$	55	$	688
Foreign currency translation adjustments		29			(43	)		-		(14	)
Unrealized investment (losses) gains, net		(3	)		-			-		(3	)

Comprehensive income		674			(58	)		55		671
Comprehensive (income) loss attributable to noncontrolling interests		(129	)		35			-		(94	)

Comprehensive income attributable to EEI	$	545		$	(23	)	$	55	$	577

Ecology and Environment Inc.

Condensed Consolidated Statement of Cash Flows

(amounts in thousands)

	Three Months Ended October 28, 2017
	As Previously Reported			Impact of GAC Deconsolidation			Other Adjustments			Restated

Cash flows from operating activities:
Net income	$	648		$	(15	)	$	55		$	688
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		270			(10	)		-			260
Provision for deferred income taxes		(21	)		(269	)		12			(278	)
Share based compensation expense		-			-			47			47
Net bad debt expense (recovery)		39			(11	)		-			28
Changes in:
- contract receivables		4,470			(489	)		(1,315	)		2,666
- other current assets		(692	)		16			168			(508	)
- income tax receivable		969			286			(11	)		1,244
- equity method investment		-			(18	)		-			(18	)
- other non-current assets		20			(9	)		3			14
- accounts payable		(1,298	)		(8	)		1,138			(168	)
- accrued payroll costs		(776	)		(8	)		-			(784	)
- income taxes payable		(7	)		2			-			(5	)
- customer deposits		836			166			-			1,002
- other accrued liabilities		35			-			-			35
Net cash provided by (used in) operating activities		4,493			(367	)		97			4,223

Cash flows from investing activities:
Purchase of property, building and equipment		(104	)		4			-			(100	)
Purchase of investment securities		(8	)		-			-			(8	)
Net cash (used in) provided by investing activities		(112	)		4			-			(108	)

Cash flows from financing activities:
Dividends paid		(860	)		-			-			(860	)
Repayment of debt		(239	)		-			-			(239	)
Net borrowings (repayment) of lines of credit		(377	)		215			-			(162	)
Distributions to noncontrolling interests		(49	)		-			-			(49	)
Net cash (used in) provided by financing activities		(1,525	)		215			-			(1,310	)

Effect of exchange rate changes on cash and cash equivalents		22			(10	)		(2	)		10

Net increase (decrease) in cash, cash equivalents and restricted cash		2,878			(158	)		95			2,815
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	$	16,221		$	(366	)	$	95		$	15,950