2.	Restatement of Unaudited Condensed Consolidated Financial Statements

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

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

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

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

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

Ecology and Environment Inc.

Condensed Consolidated Statements of Operations

(amounts in thousands, except share data)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Net (loss) income		51			(194	)		303			160

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

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

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

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

Ecology and Environment Inc.

Condensed Consolidated Statements of Comprehensive Income

(amounts in thousands)

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

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

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

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

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

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

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

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

Ecology and Environment Inc.

Condensed Consolidated Statement of Cash Flows

(amounts in thousands)

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

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

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

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

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

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

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