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.

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.

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

	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

	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

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