UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. -20549

FORM 10-Q

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

For the quarterly period ended ~~April~~November 272, 2019

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

For the transition period from __________ to __________

Commission File Number 1-9065

ECOLOGY AND ENVIRONMENT INC.

(Exact name of registrant as specified in its charter)

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

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

(716) 684-8060

(Registrant’'s telephone number, including area code)

Not Applicable

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

Securities registered pursuant to section 12(b) of the Act

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

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

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

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

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

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

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

At ~~May~~November 3130, 2019, 3,~~114~~138,~~400~~323 shares of Registrant’'s Class A Common Stock (par value $.01) and 1,~~200~~191,~~735~~678 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)

	April 27, 2019			July 31, 2018
	November 2, 2019			July 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	910,~~646~~022		$	13,~~496~~344
Investment securities available for sale		1,~~545~~582			1,~~497~~577
Contract receivables, net		2426,~~769~~123			25,~~615~~087
Income tax receivable		1,~~560~~045			~~1,230~~912
Other current assets		12,~~825~~518			12,~~752~~078
Total current assets		3941,~~345~~290			4342,~~590~~998
Property, buildings and equipment, net of accumulated depreciation of $16,967 and $16,799, respectively		3,397			3,870
Property, buildings and equipment, net of accumulated depreciation of $17,193 and $17,066, respectively		3,026			3,253
Deferred income taxes		831			789
Operating lease right of use assets		5,771			-
Equity method investment		2,005			2,058
Deferred income taxes		2,008			2,130
Other assets		2,491			2,522
Equity method investment		1,684			1,658
Total assets	$	48,069		$	52,829
Other assets		1,637			1,771
Liabilities and Shareholders’ Equity
Total assets	$	55,416		$	51,810
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	35,~~929~~310		$	56,~~635~~099
Lines of credit		~~620~~200			-284
Accrued payroll costs		56,~~097~~440			6,~~066~~661
Current portion of long-term debt and capital lease obligations		39			54
Current portion of operating lease liabilities		1,754			-
Customer deposits		2,818			3,191
Current portion of long-term debt		35			41
Other accrued liabilities		1,561			1,382
Customer deposits		4,287			3,551
Total current liabilities		14,064			16,328
Other accrued liabilities		1,146			1,386
Income taxes payable		-			-
Total current liabilities		19,172			18,022
Deferred income taxes		-			-
Operating lease liabilities		4,041			-
Long-term debt and capital lease obligations		23			54
Long-term debt		7			13
Commitments and contingencies (Note 13)		-			-
Commitments and contingencies (Note 14)		-			-
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; 3,188,720 and 3,041,911 shares issued, respectively)		32			30
Class A common stock, par value $.01 per share (6,000,000 shares authorized; 3,202,047 and 3,192,990 shares issued, respectively)		32			32
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
Class B common stock, par value $.01 per share; (10,000,000 shares authorized; 1,191,678 and 1,200,735 shares issued, respectively)		12			12
Capital in excess of par value		1716,~~662~~998			1716,~~558~~964
Retained earnings		1817,~~645~~160			2018,~~973~~687
Accumulated other comprehensive loss		(12,~~879~~273	)		(12,~~885~~098	)
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	)
Treasury stock, at cost (Class A common stock: 63,724 and 64,823 shares, respectively)		(729	)		(729	)
Total Ecology and Environment Inc. shareholders’ equity		33,588			35,783
Total Ecology and Environment Inc. shareholders' equity		31,200			32,868
Noncontrolling interests		~~394~~996			~~664~~907
Total shareholders’ equity		33,982			36,447
Total shareholders' equity		32,196			33,775
Total liabilities and shareholders’ equity	$	48,069		$	52,829
Total liabilities and shareholders' equity	$	55,416		$	51,810

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

Page 31 of 3827

Ecology and Environment Inc.

Condensed Consolidated Statements of Operations

Unaudited

(amounts in thousands, except share data)

	Three Months Ended						~~Nine Months Ended~~
	April 27, 2019			April 28, 2018 (Restated)			April 27, 2019			April 28, 2018 (Restated)
	November 2, 2019			October 27, 2018
Gross revenue	$	2122,~~775~~213		$	2021,~~677~~752		$	~~63,780~~		$	~~68,071~~
Cost of professional services and other direct operating expenses		89,~~810~~543			78,~~910~~134			~~24,718~~			~~24,494~~
Subcontract costs		23,~~992~~472			24,~~640~~574			~~11,185~~			~~13,418~~
Selling, general and administrative expenses		10,~~504~~715			9,~~949~~200			~~29,156~~			~~29,213~~
Depreciation and amortization		~~243~~234			~~282~~277			~~784~~			~~801~~
(Loss) income from operations		(774	)		(104	)		(2,063	)		145
Loss from operations		(1,751	)		(433	)
Income from equity method investment		6479			~~137~~60			~~295~~			~~376~~
Net interest income (expense)		32			58			130			56
Net interest income		59			54
Net foreign exchange gain (loss)		(7	)		11			2			(10	)
Net foreign exchange gain		1			23
Other income (expense)		(42	)		25			(35	)		37
Other income		18			26
(Loss) income before income tax provision		(727	)		127			(1,671	)		604
Loss before income tax benefit		(1,594	)		(270	)
Income tax provision (benefit)		227			(38	)		(292	)		279
Income tax benefit		(194	)		(155	)
Net (loss) income		(954	)		165			(1,379	)		325
Net loss		(1,400	)		(115	)
Net income attributable to noncontrolling interests		(76127	)		(965	)		~~(80~~	)		~~(187~~	)
Net (loss) income attributable to Ecology and Environment Inc.	$	(1,030	)	$	69		$	(1,459	)	$	138
Net loss attributable to Ecology and Environment Inc.	$	(1,527	)	$	(120	)
Net (loss) income per common share: basic and diluted	$	(0.24	)	$	0.02		$	(0.34	)	$	0.03
Net loss per common share: basic and diluted	$	(0.35	)	$	(0.03	)
Weighted average common shares outstanding: basic and diluted		4,~~315~~329,~~135~~858			4,~~301~~313,~~604~~930			~~4,314,742~~			~~4,301,604~~

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

Page 42 of 3827

Ecology and Environment Inc.

Condensed Consolidated Statements of Comprehensive Income

Unaudited

(amounts in thousands)

	Three Months Ended						~~Nine Months Ended~~
	April 27, 2019			April 28, 2018 (Restated)			April 27, 2019			April 28, 2018 (Restated)
	November 2, 2019			October 27, 2018
Net (loss) income including noncontrolling interests	$	(954	)	$	165		$	(1,379	)	$	325
Net loss including noncontrolling interests	$	(1,400	)	$	(115	)
Foreign currency translation adjustments		11(214	)		(37127	)		~~(69~~	)		-
Unrealized investment losses, net		-			(10	)		-			(26	)
Comprehensive loss		(1,614	)		(242	)
Comprehensive (loss) income		(943	)		118			(1,448	)		299
Comprehensive (income) loss attributable to noncontrolling interests		(88	)		55
Comprehensive (income) loss attributable to noncontrolling interests		(73	)		(62	)		(10	)		(185	)
Comprehensive loss attributable to Ecology and Environment Inc.	$	(1,702	)	$	(187	)
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 53 of 3827

Ecology and Environment Inc.

Condensed Consolidated Statements of Cash Flows

Unaudited

(amounts in thousands)

	Nine Months Ended
	Three Months Ended
	April 27, 2019			April 28, 2018 (Restated)
	November 2, 2019			October 27, 2018
Cash flows from operating activities:
Net (loss) income	$	(1,379	)	$	325
Net loss	$	(1,400	)	$	(115	)
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization		~~784~~234			~~801~~277
Provision for deferred income taxes		(53	)		(61	)
Deferred income tax provision		31			32
Share based compensation expense		~~127~~34			94153
Gain on sale of assets and investment securities		~~(40~~-	)		(191	)
Net recoveries of contract adjustments		(2	)		(60	)
Net (recovery) provision for contract adjustments		(104	)		23
Net bad debt recoveries		(96	)		(63	)
Net bad debt expense (recovery)		94			(19	)
Changes in:
- contract receivables		~~795~~(1,300	)		7(1,~~773~~204	)
- other current assets		(~~216~~490	)		72(945	)
- income tax receivable		(~~342~~114	)		~~266~~84
- equity method investment		53(79	)		(~~376~~60	)
- other non-current assets		3			254
- operating lease right of use assets		(5,771	)		-
- accounts payable		(809	)		(2,668	)
- other non-current assets		121			282
- accrued payroll costs		(921	)		(1,539	)
- accounts payable		123			1,999
- income taxes payable		-			286
- accrued payroll costs		(163	)		(624	)
- customer deposits		(331	)		636
- income taxes payable		-			3
- other accrued liabilities		210			(295	)
- current portion of operating lease liabilities		1,754			-
Net cash (used in) provided by operating activities		(2,217	)		5,426
- contract liabilities		790			226
- operating lease liabilities		4,041			-
- other accrued liabilities		(201	)		43
Net cash (used in) provided by operating activities		(2,400	)		154
Cash flows from investing activities:
Purchase of property, buildings and equipment		(~~371~~76	)		(~~654~~140	)
Proceeds from sale of equipment		69			19
Proceeds from sale of property, buildings and equipment		35			2
(Purchase) sale of investment securities		(24	)		(23	)
Purchase of investment securities		(8	)		(41	)
Net cash used in investing activities		(~~326~~49	)		(~~658~~179	)
Cash flows from financing activities:
Dividends paid		(~~1,726~~865	)		(~~1,721~~863	)
Repayment of debt		(43	)		(373	)
Repayment of long-term debt and capital lease obligations		(9	)		(15	)
Net borrowings (repayments) under lines of credit		632			(356	)
Net (repayments) borrowings under lines of credit		(62	)		1
Distributions to noncontrolling interests		(~~177~~6	)		(~~322~~4	)
Net cash used in financing activities		(~~1,314~~942	)		(~~2,772~~881	)
Effect of exchange rate changes on cash and cash equivalents		(359	)		~~(46~~35	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(3,860	)		1,950
Net decrease in cash, cash equivalents and restricted cash		(3,332	)		(871	)
Cash, cash equivalents and restricted cash at beginning of period		13,~~746~~592			13,~~135~~746
Cash, cash equivalents and restricted cash at end of period	$	910,~~886~~260		$	1512,~~085~~875
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	21-		$	364
Income taxes		~~331~~57			8730
Supplemental disclosure of non-cash items:
Proceeds from capital lease obligations		-			59
Acquisition of noncontrolling interest of subsidiaries		(7	)		-

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

Page 64 of 3827

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. During the ~~nine~~quarter ~~months~~ ended ~~April~~November 272, 2019, EEI and its subsidiaries (collectively, the “Company”) included ~~six~~ five active wholly-owned and majority-owned operating subsidiaries located in ~~four~~three countries (the United States of America (the “U.S.”), Brazil, ~~Peru,~~ and ~~Ecuador~~Peru), and one majority-owned equity investment in Chile. ~~During~~The ~~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 numerous scientific, engineering, health, and social disciplines working together in multidisciplinary teams to provide innovative environmental solutions. The majority of employees hold bachelor’s and/or advanced degrees in 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 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, ~~2018~~2019 filed with the SEC (the “~~2018~~2019 Annual Report”). Other than new or revised accounting policies resulting from the adoption of new accounting pronouncements described in Note 32 of these condensed consolidated financial statements, the accounting policies followed by the Company for preparation of the consolidated financial statements included in the ~~2018~~2019 Annual Report were also followed for this quarterly report. The condensed consolidated results of operations for the three ~~and~~ ~~nine~~ months ended ~~April~~November 272, 2019 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, ~~2019~~2020.

2. ~~Restatement~~Recent ofAccounting ~~Unaudited Condensed Consolidated Financial Statements~~Pronouncements

AsThe ~~previously~~Financial ~~disclosed~~Accounting inStandards ~~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~~FASB”) ~~determined~~ ~~that~~establishes ~~the~~changes ~~Company’s previously issued financial statements for quarterly periods prior~~ to ~~July~~U.S. ~~31,~~GAAP ~~2018~~in ~~can~~the noform ~~longer~~of ~~be relied upon due to errors related to~~ accounting ~~for~~standards ~~EEI’s~~updates ~~investment in Gestion Ambiental Consultores S.A.~~ (“~~GAC~~ASUs”) ~~since~~ ~~1999. The~~to ~~financial statements included in~~ the ~~Company’s~~FASB ~~Annual~~Accounting ~~Report~~Standards onCodification 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~~ASC”). The Company’s considers ~~Quarterly Reports on Forms 10-Q for~~ the ~~periods~~applicability ~~ended October 27, 2018~~ and ~~January~~ ~~26,~~impact ~~2019~~of ~~included~~all ~~restated~~ASUs ~~unaudited~~when ~~condensed~~they ~~consolidated~~are ~~statements~~issued ofby ~~operations,~~FASB. ASUs ~~comprehensive~~listed ~~income~~below ~~and~~were ~~cash~~either ~~flows~~adopted ~~for~~by the ~~three~~Company ~~months~~during ~~ended~~its ~~October~~current ~~28,~~fiscal ~~2017~~year ~~and~~or ~~the~~will ~~three~~be ~~and~~adopted ~~six~~as ~~months~~each ~~ended~~ASU ~~January~~becomes ~~27,~~effective ~~2018~~during ~~(the~~future ~~“Restated Unaudited~~reporting ~~Condensed Consolidated Financial Statements”)~~periods. ~~This~~ ASUs ~~Quarterly~~not ~~Report~~listed onbelow ~~Form~~were ~~10-Q~~assessed ~~includes~~to ~~restated~~be ~~unaudited~~not ~~condensed~~applicable ~~consolidated~~to ~~statements~~the ofCompany’s operations, ~~comprehensive~~or ~~income~~are ~~and~~expected ~~cash flows for the three and nine months ended April 28, 2018. Tables related~~ to ~~revenues,~~have ~~operating~~minimal ~~expenses~~impact ~~and~~on ~~income taxes for~~ the ~~three~~Company’s ~~and~~consolidated ~~nine~~financial ~~months~~position ~~ended~~or ~~April~~results ~~28, 2018 included in Item 2~~ of ~~this Quarterly Report on Form 10-Q have also been restated~~operations.

~~The~~Accounting ~~Company~~Pronouncements ~~had~~Adopted ~~previously~~During ~~included GAC’s financial statements in consolidated financial statements filed with~~ the ~~SEC~~Three ~~prior~~Months toEnded ~~July~~November 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.2

~~Page~~In 7March 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 (together with subsequent ASUs that amended and clarified the guidance in ASU 2016-02) is the recognition of 38lease 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. The Company adopted the provisions of ASU 2016-02 effective August 1, 2019, using the modified retrospective approach under which comparative period information is not restated. The Company elected certain practical expedients allowed in ASU 2016-02 which permit the Company to: (i) not reassess whether existing contracts are or contain leases; (ii) not reassess the lease classification of any existing leases; (iii) not reassess initial direct costs for any existing leases; and (iv) not separate lease and non-lease components for all classes of underlying assets. The Company also made an accounting policy election to not record leases with an initial term of twelve months or less on the balance sheet for all classes of underlying assets.

~~Collectively,~~Page ~~the~~5 ~~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.27

InOn ~~addition to~~ the ~~GAC~~effective ~~Deconsolidation Adjustments~~date, ~~previously filed financial statements for~~ the ~~three~~Company ~~and~~recognized ~~nine~~new ~~months~~right-of-use ~~ended~~assets ~~April 28, 2018 were also adjusted to correct other errors in the financial statements~~ and ~~disclosures~~corresponding ~~that~~lease ~~were~~liabilities ~~deemed~~associated towith beoperating ~~immaterial~~leases ~~on an individual basis and in the aggregate for those reporting periods (the “Out~~ of ~~Period~~approximately ~~Adjustments”). For the three months ended April 28, 2018, the Out of Period Adjustments resulted in decreases of~~ $06.2 million~~, less than $0~~.1 The ~~million~~adoption ~~and $0.1 million~~ of ~~consolidated~~ASU ~~gross~~2016-02 ~~revenue,~~did ~~income~~not ~~before~~have ~~income~~a material ~~tax~~impact ~~provision~~on ~~and~~the ~~net~~Company’s ~~income~~results ~~attributable~~of tooperations ~~EEI,~~or ~~respectively~~liquidity. ~~For~~Refer ~~the~~to ~~nine~~Note ~~months~~9 ~~ended April 28, 2018, the Out~~ of ~~Period~~these ~~Adjustments~~condensed ~~resulted in increases of $0.3 million, less than $0.1 million and $0.3 million of~~ consolidated ~~gross~~financial ~~revenue,~~statements ~~income~~for ~~before~~additional ~~income~~disclosures ~~tax~~regarding ~~provision and net income attributable to EEI, respectively~~Leases.

~~The~~Accounting ~~“As~~Pronouncements ~~Previously~~Not ~~Reported”~~Yet ~~amounts~~Adopted inas ~~the~~of ~~tables~~November ~~below represent the amounts reported in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended April 28~~2, ~~2018, filed with the SEC on June 12, 2018.~~2019

~~Page~~In 8June 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 38financial 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 2016-13 originally was to be effective for the Company beginning August 1, 2020. In November 2019, FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) (“ASU 2019-10”). ASU 2019-10 revised the effective date of ASU 2016-13 for the Company to August 1, 2023. Management is currently assessing the provisions of ASU 2016-13 and has not yet estimated its impact on the Company’s consolidated financial statements.

~~Ecology~~In January 2017, FASB issued ASU No. 2017-04, Intangibles – Goodwill and ~~Environment~~Other ~~Inc~~(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. ASU 2017-04 originally was to be effective for the Company beginning August 1, 2021, but ASU 2019-10 revised the effective date of ASU 2017-04 for the Company to August 1, 2023. Management is currently assessing the provisions of ASU 2017-04 and has not yet estimated its impact on the Company’s consolidated financial statements.

~~Condensed~~3. ~~Consolidated~~Agreement ~~Statements~~and Plan of ~~Operations~~Merger

On August 28, 2019, the Company entered into an Agreement and Plan of Merger (~~amounts~~the in“Merger ~~thousands~~Agreement”) with WSP Global Inc., ~~except~~a ~~share~~Canadian ~~data~~corporation (“WSP”), and Everest Acquisition Corp., a New York corporation and an indirect wholly owned subsidiary of WSP (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”) with the Company continuing as the surviving corporation.

	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

Under the terms of the Merger Agreement, at the Effective Time (as defined in the Merger Agreement), each share of the Company’s Class A common stock, $0.01 par value per share and Class B common stock, $0.01 par value per share (collectively, the “Company Shares”), issued and outstanding immediately prior to the Effective Time, (other than shares (i) held by the Company (or held in the Company’s treasury), (ii) held by any wholly owned subsidiary of the Company, (iii) held by WSP, Merger Sub or any other wholly owned subsidiary of WSP or (iv) held by holders of Class B common stock who have made a proper demand for appraisal of the shares in accordance with Section 623 of the New York Business Corporation Law) but including shares that are, as of the Effective Time, unvested and subject to restrictions, will be converted into the right to receive $15.00 in cash, without interest and subject to any required tax withholding. In addition, the Merger Agreement provides that record holders of Company Shares as of the close of business on the last business day prior to the Effective Time, including any shares that are then unvested and subject to restrictions, will receive a one-time special dividend from the Company of up to $0.50 in cash per share to be paid shortly after closing (the “Special Dividend”). The amount of the Special Dividend is subject to pro rata reduction if certain expenses incurred by the Company in connection with the Merger exceed $3.05 million in the aggregate, as further described in the Merger Agreement.

~~Page~~The 9consummation of 38the Merger is subject to the satisfaction or waiver of specified closing conditions, including: (i) the absence of an order, injunction or law issued by a court or governmental authority of competent jurisdiction that makes the consummation of the Merger illegal; (ii) the absence of legal proceedings brought by a governmental authority of competent jurisdiction seeking to restrain or prohibit the Merger; (iii) the clearance of the Merger by the Committee on Foreign Investment in the United States without the imposition of any burdensome conditions, as defined in the Merger Agreement; and (iv) subject to certain materiality qualifications, the continued accuracy of the Company’s representations and warranties and continued compliance by the Company with covenants and obligations (to be performed at or prior to the closing of the Merger).

	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

If the Merger Agreement is terminated in certain circumstances, the Company may be required to pay WSP a termination fee of $4.0 million or reimburse WSP for certain expenses up to $1.75 million.

~~Ecology~~Page ~~and~~6 ~~Environment~~of ~~Inc.~~27

~~Condensed~~The ~~Consolidated~~foregoing ~~Statements~~description of ~~Comprehensive~~the ~~Income~~Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 28, 2019. Additional information about the Merger and the Merger Agreement is set forth in the Company’s definitive proxy statement filed with the SEC on October 8, 2019 and the definitive proxy statement supplement filed with the SEC on November 7, 2019.

~~(amounts~~On November 20, 2019, the Company held a special meeting of the Company’s stockholders at which a proposal to adopt the Merger Agreement was approved by the requisite vote of the Company’s stockholders, as more fully described in ~~thousands)~~the Company’s Current Report on Form 8-K/A filed with the SEC on December 4, 2019.

	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

During the quarter ended November 2, 2019, the Company’s U.S. operations recorded approximately $1.5 million of expenses in selling, general and administrative expenses related to the Merger.

~~Page~~4. 10Cash, ofCash 38Equivalents and Restricted Cash

	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

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

Page 11 of 38

	November 2, 2019		July 31, 2019
	(in thousands)

Cash and cash equivalents	$	10,022	$	13,344
Restricted cash (included in other assets)		238		248
Total cash, cash equivalents and restricted cash	$	10,260	$	13,592

~~Ecology~~The Company considers all liquid instruments purchased with a maturity of three months or less to be cash equivalents. Money market funds of $0.2 million and ~~Environment~~less ~~Inc~~than $0.1 million were included in cash and cash equivalents at November 2, 2019 and July 31, 2019, respectively. Restricted cash included in other assets represents collateral for pending litigation matters in Brazil that are not expected to be resolved within one year from the balance sheet date.

~~Condensed~~5. ~~Consolidated~~Fair ~~Statement~~Value of ~~Cash~~Financial ~~Flows~~Instruments

(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

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 (“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 27, 2019

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 Note 7 of these condensed consolidated financial statements for additional disclosures regarding the Company’s adoption of ASC Topic 606.

In January 2016, FASB issued ASU No. 2016-01, Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). The amendments in ASU 2016-01 address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. In February 2018, FASB issued ASU 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10) – Recognition and Measurement of Financial Assets and Financial Liabilities, which clarified certain aspects of the guidance issued in ASU 2016-01. Under the new guidance, entities are no longer able to classify equity investments as either trading or available for sale (“AFS”), and may no longer recognize unrealized holding gains and losses in other comprehensive income on equity securities that were classified as AFS under previous U.S. GAAP. The Company adopted the applicable provisions of ASU 2016-01 effective August 1, 2018 by recording a cumulative effect adjustment of less than $0.1 million to beginning retained earnings and beginning accumulated other comprehensive income on the condensed consolidated balance sheets. The cumulative effect adjustment is also separately reported on the condensed consolidated statements of 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, 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 policy to classify distributions received from equity method investees using one of two possible approaches:

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

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

The Company adopted the provisions of ASU 2016-15 effective August 1, 2018 and elected the “cumulative earnings approach.”

The Company received $0.2 million of dividends from its equity method investee during the 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. 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.

4. Significant Transactions During the Three Months Ended April 27, 2019

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 Company 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 Company’s Restated 2019 Annual Report and 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 and 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 27, 2019, $0.6 million of which was recorded during the three months ended April 27, 2019.

5. Cash, Cash Equivalents and Restricted Cash

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

	April 27, 2019		July 31, 2018
	(in thousands)
Cash and cash equivalents	$	9,646	$	13,496
Restricted cash included in other assets		240		250
Total cash, cash equivalents and restricted cash	$	9,886	$	13,746

The Company considers all liquid instruments purchased with a maturity of three months or less to be cash equivalents. Money market funds of less than $0.1 million and $0.4 million were included in cash and cash equivalents at April 27, 2019 and July 31, 2018, respectively. Restricted cash included in other assets represents collateral for pending litigation matters in Brazil that are not expected to be resolved within one year from the balance sheet date.

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 asis ofreported at 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~~three months ended ~~April~~November 272, 2019 or ~~the fiscal~~October ~~year ended July 31~~27, 2018.

The carrying amount of cash, cash equivalents and restricted cash approximated fair value at ~~April~~November 272, 2019 and July 31, ~~2018~~2019. These assets were classified as level 1 instruments at both dates.

~~Investment~~Page ~~securities~~7 ~~available for sale~~ of ~~$1.5 million at April~~ 27, 2019 and July 31, 2018 primarily included mutual funds invested in U.S. municipal bonds, which the Company may immediately redeem without prior notice. These mutual funds are valued at the net asset value (“NAV”) of shares held by the Company at period end as a practical expedient to estimate fair value. These mutual funds are deemed to be actively traded, are required to publish their daily NAV and are required to transact at that price.

~~Prior~~Investment ~~to August 1, 2018, unrealized gains or losses related to investment~~ securities ~~available for sale were recorded in the consolidated balance sheets and statements~~ of ~~comprehensive income~~$1. ~~Subsequent~~6 tomillion ~~adoption~~at ofNovember ~~ASU~~2, ~~2016-01~~2019 ~~effective~~and ~~August~~July 131, ~~2018~~2019 ~~(refer~~primarily toincluded ~~Note~~mutual 3funds ofinvested ~~these~~in ~~condensed~~U.S. ~~consolidated~~municipal ~~financial statements)~~bonds, ~~unrealized~~which ~~gains~~the orCompany ~~losses~~may ~~related~~immediately toredeem ~~investment~~without ~~securities~~prior notice. These ~~available~~mutual ~~for sale~~funds are ~~recorded~~valued inat the ~~consolidated~~NAV ~~statements~~ of ~~operations. The~~shares ~~cost~~held ~~basis~~by ofthe ~~securities~~Company ~~sold~~at isperiod ~~based~~end onas ~~the~~a ~~specific~~practical ~~identification~~expedient ~~method~~to estimate fair value. ~~The~~These ~~Company~~mutual ~~did~~funds ~~not~~are ~~record~~deemed ~~any~~to ~~sales~~be ofactively ~~investment~~traded, ~~securities~~are ~~during~~required ~~the~~to ~~nine~~publish ~~months~~their ~~ended~~daily ~~April~~NAV ~~27,~~and are ~~2019~~ required ~~and~~to ~~April~~transact ~~28,~~at ~~2018~~that price.

~~Long-term~~The ~~debt~~Company ~~consists~~recorded ofunrealized ~~bank~~investment ~~loans~~losses ~~and~~or ~~capitalized~~gains ~~equipment leases. Lines~~ of ~~credit~~less ~~consist~~than of$0.1 ~~borrowings~~million ~~for~~in ~~working~~other ~~capital~~income ~~requirements. Based~~ on the ~~relative~~ ~~immateriality~~consolidated statement of ~~consolidated~~operations ~~debt~~during ~~and~~the ~~line~~three ofmonths ~~credit~~ended ~~borrowings~~November 2, ~~management~~2019 ~~believes~~and ~~that~~October 27, ~~the~~2018. The ~~carrying~~Company ~~amount~~did not record any sales of ~~these~~investment ~~liabilities~~securities ~~approximated~~during ~~fair~~the ~~value~~three atmonths ~~April~~ended 27November 2, 2019 and ~~July~~October 3127, 2018. ~~These liabilities were classified as level 2 instruments at both dates.~~

~~There~~Long-term ~~were~~debt noconsists ~~financial~~of ~~instruments~~bank ~~classified~~loans asand ~~level~~capitalized 3equipment leases. Lines of credit consist of borrowings for working capital requirements. The carrying amount of these liabilities approximated fair value at ~~April~~November 272, 2019 and July 31, ~~2018~~2019. These liabilities were classified as level 2 instruments at both dates.

76. Revenue and Contract Receivables, net

~~Adoption~~Substantially all the Company's revenue is derived from environmental consulting work, which is principally derived from the sale of ~~ASC~~labor ~~Topic~~hours. Revenue ~~606~~reflected in the Company's consolidated statements of operations represent services rendered for which the Company maintains a primary contractual relationship with its customers. Included in revenue are certain services outside the Company's normal operations which the Company has elected to subcontract to other contractors.

The Company’s ~~adopted~~consulting ~~ASC~~work ~~Topic 606 effective August 1, 2018. Gross revenue for reporting periods beginning after July 31, 2018~~ is ~~recognized~~performed under ~~ASC Topic~~a ~~606. Gross~~mix ~~revenue~~of ~~for~~time ~~previous~~and ~~reporting periods was recognized in accordance with historic accounting under U.S. GAAP~~materials, asfixed ~~summarized~~price inand ~~revenue~~cost-plus ~~recognition policies included in the Company’s 2018 Annual Report~~contracts.

The Company ~~adopted~~accounts ~~ASC~~for ~~Topic~~time ~~606~~and ~~using~~material contracts over the ~~modified~~period ~~retrospective~~of ~~method~~performance, predominately based on labor hours incurred. AsUnder atime ~~practical~~and ~~expedient~~materials ~~allowed~~contracts, ~~under~~there ~~ASC~~is ~~Topic~~no ~~606~~predetermined fee. Instead, the Company ~~applied~~negotiates ~~the~~hourly ~~new~~billing ~~guidance~~rates ~~only~~and tocharges ~~contracts that~~the ~~were~~clients ~~not~~based ~~completed~~upon asactual ofhours ~~the~~expended ~~date~~on ofa ~~initial application~~project. ~~The~~In ~~Company~~addition, ~~did~~any ~~not~~direct ~~record~~project ~~any~~expenditures ~~cumulative~~are ~~effect~~passed ~~adjustment~~through to ~~retained~~the ~~earnings~~client asand ofare ~~August~~typically 1,reimbursed. Time ~~2018,~~ and materials ~~did~~contracts may contain “not ~~record~~to ~~any~~exceed” ~~material~~provisions ~~adjustment~~that ~~to gross~~effectively cap the amount of revenue ~~for~~that the ~~three~~Company orcan ~~nine~~bill ~~months~~to ~~ended~~the ~~April~~client. In 27order to record revenue that exceeds the billing cap, ~~2019~~the asCompany amust ~~result~~obtain ofapproval ~~applying~~from the ~~guidance~~client for inexpanded ~~ASC~~scope ~~Topic~~or ~~606~~increased pricing.

The Company accounts for fixed price contracts over time, based on progress determined by the ratio of efforts expended to date in proportion to total efforts expected to be expended over the life of a contract. This revenue recognition 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 effort expected to be incurred until the completion of the project. Revenue ~~Recognition~~is ~~under~~then ~~ASC~~calculated ~~Topic~~on ~~606~~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 revenue already recognized. If an estimate of efforts expended at completion on any contract indicates that a loss will be incurred, the entire estimated loss is charged to operations in the period the loss becomes evident.

~~The~~Cost-plus ~~Company~~contracts ~~recognizes~~provide ~~substantially~~for ~~all~~payment of ~~its~~allowable ~~revenue~~incurred ~~from~~efforts ~~the~~expended, ~~sale~~to ofthe ~~labor~~extent ~~hours~~prescribed ~~under~~in ~~environmental~~the ~~consulting~~contract, ~~contracts. Revenue~~plus ~~reflected~~fees inthat ~~the~~are ~~Company’s consolidated~~recorded ~~statements~~as ofrevenue. These ~~operations~~contracts ~~represents~~establish ~~services~~an ~~rendered~~estimate ~~for~~of total ~~which~~efforts ~~the~~to ~~Company~~be ~~maintains~~expended aand ~~primary~~an ~~contractual~~invoicing ~~relationship~~ceiling ~~with~~that ~~its~~the ~~customers. Included~~contractor inmay ~~revenue~~not ~~are~~exceed ~~certain~~without ~~services~~the ~~outside~~approval of the ~~Company’s~~client. Revenue ~~normal~~earned ~~operations~~from ~~that~~cost-plus ~~the Company~~contracts ~~has~~is ~~elected~~recognized toover ~~subcontract~~the toperiod ~~other~~of ~~contractors~~performance.

~~Page~~Substantially 15all the Company's cost-plus contracts are with federal governmental agencies and, as such, are subject to audits after contract completion. Government audits have been completed and final rates have been negotiated through fiscal year 2017. The Company records an allowance for project disallowances in other accrued liabilities for potential disallowances resulting from government audits. Allowances for project disallowances are recorded as adjustments to revenue when the amounts are estimable. Resolution of 38these amounts is dependent upon the results of government audits and other formal contract close-out procedures.

InChange ~~accordance~~orders ~~with~~can ~~ASC~~occur ~~Topic~~when ~~606,~~changes ~~the~~in ~~Company~~scope ~~identifies~~are amade ~~contract~~after ~~with~~project awork ~~customer,~~has ~~identifies~~begun ~~the~~and ~~performance~~can ~~obligations~~be ininitiated by either the ~~contract,~~Company ~~determines~~or ~~the transaction~~its ~~price,~~clients. Claims ~~allocates~~are amounts in excess of the ~~transaction~~agreed contract price which tothe ~~each~~Company ~~performance~~seeks ~~obligation~~to inrecover ~~the~~from ~~contract~~a ~~and~~client ~~recognizes~~for ~~revenue~~customer ~~when~~delays (and/or ~~as)~~errors ~~the~~or ~~Company~~unapproved ~~satisfies~~change aorders ~~performance~~that ~~obligation~~are in dispute. The Company recognizes ~~the~~costs ~~vast~~related ~~majority~~to ofchange ~~its~~orders ~~contractual revenue~~and ~~over~~claims ~~time,~~ as ~~services~~incurred. Revenue ~~are rendered~~ and ~~performance~~profit ~~obligations~~ are ~~satisfied,~~recognized ~~because~~on change oforders ~~the~~when ~~continuous~~it ~~transfer~~is ofprobable ~~control~~that to the ~~customer,~~change ~~and~~order ~~because~~will ~~the~~be ~~Company~~approved, ~~generally~~and ~~maintains~~ the ~~right~~amount tocan ~~remuneration~~be ~~for~~reasonably ~~efforts~~estimated. Revenue ~~already~~is ~~expended under~~recognized ~~its~~only ~~contracts~~up ~~even~~to ~~if a customer terminates~~ the ~~contract. The~~amount ~~Company’s~~of ~~contracts~~costs ~~with~~incurred ~~customers~~on ~~generally~~contract ~~include~~claims ~~payment~~when ~~terms~~realization ~~that~~is ~~range~~probable, ~~from~~estimable ~~30-90~~and reasonable ~~days~~support from the ~~billing~~customer ~~date~~exists.

AThe ~~performance~~Company ~~obligation~~expenses isall abid ~~promise~~and inproposal aand other pre-contract tocosts ~~transfer~~as aincurred. Out ~~distinct~~of ~~good~~pocket orexpenses ~~service~~such toas ~~the~~travel, ~~customer~~meals, field supplies, and isother ~~the~~costs ~~unit~~billed ofdirect ~~account~~to ~~for~~contracts ~~revenue~~are ~~recognition. The~~included ~~Company~~ in ~~allocates~~both arevenue ~~contract’s~~and ~~transaction~~cost ~~price~~of toprofessional ~~each~~services. Sales ~~distinct performance obligation~~ and ~~recognizes~~cost ~~revenue~~of ~~when,~~sales orwithin ~~as,~~ the ~~performance obligation is satisfied. Predominantly, the~~ Company’s ~~contracts~~South ~~have~~American aoperations ~~single~~exclude ~~performance~~value ~~obligation because~~added ~~the~~tax ~~promise~~(VAT) toassessments ~~transfer~~by ~~the~~governmental ~~individual~~authorities, ~~goods~~which orthe ~~services~~Company iscollects ~~not separately identifiable~~ from ~~other~~its ~~promises~~customers inand ~~the~~remits to ~~contracts~~governmental authorities.

~~The~~Page ~~Company~~8 ~~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, predominately based on labor hours incurred. Under these types of contracts, there is no predetermined fee. Instead, the Company negotiates hourly billing rates and charges the clients based upon actual hours expended on a project. In addition, any direct project expenditures are passed through to the client and are typically reimbursed. Time and materials contracts may contain “not to exceed” provisions that effectively cap the amount of revenue that the Company can bill to the client. In order to record revenue that exceeds the billing cap, the Company must obtain approval from the client for expanded scope or increased pricing.27

~~The~~Billed ~~Company~~contract ~~recognizes~~receivables ~~revenue~~represent ~~under~~amounts ~~fixed~~billed ~~price contracts using the proportional performance method, under which progress is determined based on the ratio of efforts expended~~ to ~~date~~clients in ~~proportion~~accordance towith ~~total~~contracted ~~efforts~~terms ~~expected~~but tonot becollected ~~expended~~as ~~over the life~~ of ~~a contract. The proportional performance method requires~~ the ~~use~~end of ~~estimates and judgment regarding a project’s expected revenue and~~ the ~~extent~~reporting ~~of progress towards completion~~period. ~~The~~Billed ~~Company~~contract ~~makes~~receivables ~~periodic~~may ~~estimates~~include: of(i) amounts ~~progress~~billed ~~towards~~for ~~project~~revenue ~~completion~~from ~~by analyzing~~ efforts expended toand ~~date,~~fees ~~plus an estimate of the amount of efforts to expend~~ that wehave ~~expect~~been toearned ~~incur~~in ~~until~~accordance ~~the~~with ~~completion~~contractual ofterms; ~~the project. Revenue~~and ~~is then calculated on a cumulative basis~~ (~~project-to-date~~ii) asprogress ~~the~~billings ~~proportion~~in ofaccordance ~~efforts-expended. The~~with ~~revenue~~contractual ~~for~~terms ~~the~~that ~~current~~include ~~period is calculated as cumulative~~ revenue ~~less~~not ~~project~~yet ~~revenue~~earned ~~already~~as ~~recognized. If an estimate~~ of ~~efforts~~ ~~expended at completion on any contract indicates that a loss will be incurred,~~ the ~~entire~~end ~~estimated~~of ~~loss is charged to operations in~~ the reporting 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-plus contracts are with federal governmental agencies and, as such, are subject to audits after contract completion. Government audits have been completed and final rates have been negotiated through fiscal year 2014. The Company recorded an allowance for potential disallowances resulting from government audits of $0.7 million in other accrued liabilities at April 27, 2019 and July 31, 2018. Adjustments to allowances for project disallowances are recorded as adjustments to revenue when the amounts are estimable. Resolution of these amounts is dependent upon the results of government audits and other formal contract closeout procedures.

Contract modifications are common in the performance the Company’s contracts, and typically result from changes in scope, specifications, design, performance, sites, or period of completion. In most cases, contract modifications are for services that are not distinct, and, therefore, are accounted for as part of the existing contract. Revenue is recognized on contract modifications when it is probable that the modification will be approved and the amount can be reasonably estimated.

Cost of professional services and other direct operating expenses, which includes employee labor and fringe expenses and out of pocket expenses such as travel, meals and field supplies, represent costs incurred in connection with revenue recognized under client contracts. Sales and cost of sales recognized by the Company’s South American operations exclude value added tax (VAT) assessments by governmental authorities, which the Company collects from its customers and remits to governmental authorities.

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

Page 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 revenue from efforts expended and fees 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, 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 billed as of the end of the reporting period. Unbilled contract receivables that are not expected to be billed and 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 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 doubtful accounts is recorded within selling, general and administrative expenses on the condensed consolidated statements of operations.

~~The Company may record contract assets for the right to receive consideration from customers when that right is conditional based on future performance under a contract.~~ Contract ~~assets are transferred to billed contract receivables when the right to consideration becomes unconditional. The Company did not record any contract assets at April 27~~Receivables, ~~2019~~net orand ~~July~~Contract ~~31, 2018.~~Assets

AtContract ~~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~~summarized ~~expected to be collected within one year. These receivable balances are included~~ in ~~other assets on~~ the ~~accompanying~~following ~~condensed consolidated balance sheets~~table.

	November 2, 2019			July 31, 2019
	(in thousands)
Contract Receivables:
Billed	$	12,437		$	12,405
Unbilled		14,708			13,686
Total contract receivables		27,145			26,091
Allowance for doubtful accounts		(1,022	)		(1,004	)
Contract receivables, net	$	26,123		$	25,087

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 at November 2, 2019 and July 31, 2019. Management anticipates that the unbilled contract receivables and retainage balances at November 2, 2019 will be substantially billed and collected within one year.

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 assets are transferred to billed contract receivables when the right to consideration becomes unconditional. The Company did not record any contract assets at November 2, 2019 or July 31, 2019.

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)

November 2, 2019

October 27, 2018

(in thousands)

Balance at beginning of period

1,~~234~~004

1,~~902~~284

~~1,284~~

~~2,044~~

Provision for doubtful accounts during the period

8997

~~154~~27

~~159~~

~~246~~

Write-offs and recoveries of allowance recorded in prior periods

(~~152~~79

)

(~~444~~11

)

~~(272~~

)

~~(678~~

)

Balance at end of period

1,~~171~~022

1,~~612~~300

~~1,171~~

~~1,612~~

Page 179 of 3827

Contract Receivable Concentrations

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

April 27, 2019

July 31, 2018 Restated

November 2, 2019

July 31, 2019

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

2021,~~340~~121

~~505~~528

2120,~~580~~211

~~569~~489

South American operations

56,~~600~~024

~~666~~494

5,~~319~~880

~~715~~515

Totals

2527,~~940~~145

1,~~171~~022

26,~~899~~091

1,~~284~~004

The ~~allowance for doubtful accounts for the~~ Company’s South American operations ~~represented~~have ~~12%~~historically ofmaintained ~~related~~a ~~contract~~higher ~~receivables~~level atof ~~April~~allowance ~~27,~~for ~~2019~~doubtful ~~compared~~accounts tothan 2%its ~~for the Company’s~~ U.S. operations~~. Unstable~~, due to uncertain or unstable local economies that adversely impact ~~impacted~~ certain of our South American clients. The inallowance ~~recent~~for ~~years~~doubtful ~~demonstrated~~accounts ~~signs~~for the Company’s South American operations represented 9% of ~~stabilizing~~related ~~during~~contract ~~fiscal~~receivables ~~year~~at ~~2018~~November 2, 2019 and July 31, 2019, compared with 2% for U.S. operations at the same dates. Management continues to monitor trends and events that may adversely impact the realizability of recorded receivables from our South American clients.

Disaggregation of Revenues

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

Three Months Ended

~~Nine Months Ended~~

April 27, 2019

April 28, 2018 (Restated)

April 27, 2019

April 28, 2018 (Restated)

November 2, 2019

October 27, 2018

Gross revenue from time and materials contracts:

U.S. operations

109,~~699~~965

109,~~038~~257

~~29,689~~

~~28,826~~

South American operations

-40

Total gross revenue from time and materials contracts

10,~~699~~005

109,~~038~~257

~~29,689~~

~~28,826~~

Gross revenue from fixed price contracts:

U.S. operations

23,~~888~~650

3,~~248~~612

~~9,445~~

~~10,336~~

South American operations

4,~~840~~395

43,~~112~~741

~~12,530~~

~~14,287~~

Total gross revenue from fixed price contracts

78,~~728~~045

7,~~360~~353

~~21,975~~

~~24,623~~

Gross revenue from cost-plus contracts:

U.S. operations

34,~~348~~163

35,~~279~~142

~~12,116~~

~~14,622~~

South American operations

Total gross revenue from cost-plus contracts

34,~~348~~163

35,~~279~~142

~~12,116~~

~~14,622~~

Gross revenue from all contracts:

U.S. operations

1617,~~935~~778

1618,~~565~~011

~~51,250~~

~~53,784~~

South American operations

4,~~840~~435

43,~~112~~741

~~12,530~~

~~14,287~~

Consolidated gross revenue

2122,~~775~~213

2021,~~677~~752

~~63,780~~

~~68,071~~

Customer Deposits

Customer deposits of $24.83 million and $3.26 million at ~~April~~November 272, 2019 and July 31, ~~2018~~2019, respectively, represent cash advances received from customers for future services.

87. 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 1810 of 3827

AsAt ofNovember ~~April 27~~2, 2019 and July 31, ~~2018~~2019, the Company consolidated one majority owned subsidiary that was deemed to be a VIE. The financial position of this VIE as of ~~April~~November 272, 2019 and July 31, ~~2018~~2019 is summarized in the following table.

	April 27, 2019			July 31, 2018
	November 2, 2019			July 31, 2019
	(in thousands)
Current assets	$	3,~~269~~226		$	23,~~359~~549
Noncurrent assets		~~766~~1,952			~~878~~781
Total assets	$	45,~~035~~178		$	34,~~237~~330
Current liabilities	$	5,~~753~~246		$	5,~~408~~728
Noncurrent liabilities		167			3212
Total liabilities		5,~~769~~253			5,~~440~~740
Total Ecology and Environment Inc. shareholder’s equity		~~(688~~253	)		(~~1,051~~708	)
Noncontrolling interests shareholders’ equity		(~~1,046~~328	)		(~~1,152~~702	)
Total shareholders’ equity		(~~1,734~~75	)		(21,~~203~~410	)
Total liabilities and shareholders’ equity	$	45,~~035~~178		$	34,~~237~~330

Total gross revenue of the consolidated VIE was $92.57 million and $82.14 million for the ~~nine~~three months ended ~~April~~November 272, 2019 and ~~April~~October 28, 2018, respectively. With the exception of restricted cash of $0.2 million ~~and $0.3 million~~ included in noncurrent assets at ~~April~~November 272, 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 is not the primary beneficiary, and other investee companies over which the Company does not influence or control the activities that most significantly impact the investee company’s economic performance, are not consolidated and are accounted for under the equity method of accounting. Under the equity method of accounting, an investee company’'s accounts are not reflected within the Company’'s consolidated balance sheets and statements of operations. The Company’'s share of the earnings of the investee company is reported as earnings from equity method investment in the Company’'s consolidated statements of operations. The Company’'s carrying value in an equity method investee is reported as equity method investment on 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 $21.07 million ~~and $2.1 million~~ at ~~April~~November 272, 2019 and July 31, ~~2018, respectively~~2019. InThe ~~April 2019,~~Company’s ~~GAC~~ownership ~~issued~~percentage ~~additional~~was ~~shares~~52.48% toat ~~two~~both ofdates. The ~~its~~equity ~~senior~~method investment ~~employees,~~is ~~which~~included ~~effectively~~within ~~reduced~~ the Company’s ~~ownership~~South ~~percentage~~American tooperating 52segment.~~48%~~ Activity asrecorded offor ~~April~~the ~~27,~~Company’s ~~2019~~equity ~~from~~method ~~55.10%~~investment atis ~~July~~summarized ~~31,~~in ~~2018~~the following table.

Page 19 of 38

	Three Months Ended
	November 2, 2019			October 27, 2018
	(in thousands)

Equity investment carrying value at beginning of period	$	1,658		$	2,058
Equity investee net income attributable to EEI		79			60
EEI’s portion of other comprehensive loss recorded by the equity investee		(53	)		---
Equity investment carrying value at end of period	$	1,684		$	2,118

~~The~~Page ~~equity~~11 ~~method~~of ~~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 financial position of the equity method investee is summarized in the following table.

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

	November 2, 2019		July 31, 2019
	(in thousands)

Current assets	$	5,233	$	5,671
Noncurrent assets		1,173		1,215
Total assets	$	6,406	$	6,886

Current liabilities	$	2,758	$	3,232
Noncurrent liabilities		793		847
Total liabilities		3,551		4,079
Total Ecology and Environment Inc. shareholder’s equity		1,830		1,806
Noncontrolling interests shareholders’ equity		1,025		1,001
Total shareholders’ equity		2,855		2,807
Total liabilities and shareholders’ equity	$	6,406	$	6,886

	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 equity method investee’s results of operations are summarized in the following table.

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

	Three Months Ended
	November 2, 2019		July 31, 2019
	(in thousands)

Gross revenue	$	2,892	$	2,852
Direct cost of services and subcontract costs		1,829		1,974
Income from operations		229		157
Net income		151		109
Net income attributable to EEI		79		60

	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

8.	Lines of Credit

9. Lines of Credit

Unsecured lines of credit are summarized in the following table.

	April 27, 2019		July 31, 2018
	November 2, 2019		July 31, 2019
	(in thousands)
Outstanding cash advances	$	620	$	---
Outstanding cash advances reported as lines of credit	$	200	$	284
Outstanding letters of credit		1,~~570~~338		1,~~668~~635
Total amounts used under lines of credit		21,~~190~~538		1,~~668~~919
Remaining amounts available under lines of credit		3334,~~668~~311		3634,~~832~~015
Total approved unsecured lines of credit	$	35,858	$	38,500
Total unsecured lines of credit	$	35,849	$	35,934

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

• $19.0 million available line of credit at ~~April~~November 272, 2019 and July 31, 209; no outstanding cash advances asat ofNovember ~~April 27~~2, 2019 or July 31, ~~2018~~2019; letters of credit of less than $0.1 million were outstanding at ~~April~~November 272, 2019 and July 31, ~~2018~~2019; interest rate ~~on cash advances is~~ based on LIBOR plus 275 basis points; and

~~Page~~• 20$13.5 million available line of 38credit at November 2, 2019 and July 31, 2019; no outstanding cash advances at November 2, 2019 or July 31, 2019; letters of credit of less than $0.1 million outstanding at November 2, 2019 and July 31, 2019; interest rate based on LIBOR plus 200 basis points.

• $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 are supported by two line of credit arrangements:

• $2.0 million available line of credit at November 2, 2019 and July 31, 2019 to support operations in Peru; no outstanding cash advances as of ~~April~~$0.2 27million and zero at November 2, 2019 orand July 31, ~~2018~~2019, respectively; letters of credit of $0.7 million and $1.0 million were outstanding at ~~April~~November 272, 2019 and July 31, ~~2018~~2019, respectively; interest rate ~~on cash advances~~ is affirmed by or negotiated with the lender annually; and

• $1.3 and $1.4 million available line of credit at November 2, 2019 and July 31, 2019, respectively to support operations in Brazil; outstanding cash advances of zero and $0.63 million ofat ~~cash~~November ~~advances~~2, ~~were~~2019 ~~outstanding~~and asJuly ~~of April 27~~31, 2019, respectively; ~~$0.6~~letters ~~million~~ of ~~letters~~credit of ~~credit~~$0.6 million were outstanding at ~~April~~November 272, 2019 and July 31, ~~2018~~2019; interest rate ~~on cash advances is~~ based on a Brazilian government economic index.

Page 12 of 27

Leases

Nature of Leases

The Company's leases are classified as operating leases and consist mostly of real estate leases. For leases with terms greater than twelve months at lease commencement, the Company recognizes a right of use asset and a corresponding lease liability. The initial right of use asset and corresponding lease liability are recognized at the present value of remaining lease payments over the lease term. Because the Company has elected to not separate lease and non-lease components, lease payments include variable costs paid to the landlord for common area maintenance, real estate taxes, insurance, and other operating expenses. Leases with an initial term of twelve months or less are not recorded on the Company's condensed consolidated balance sheet. The Company recognizes lease expense for operating leases on a straight-line basis over the lease term.

The Company's leases have lease terms ranging from one to six years, some of which include options to extend or terminate the lease. The exercise of lease renewal options is at the Company's sole discretion. When deemed reasonably certain of exercise, the renewal options are included in the determination of the lease term. The Company's lease agreements do not contain material residual value guarantees or any material restrictive covenants.

As of November 2, 2019, the Company does not have any significant additional operating leases that have not yet commenced.

Significant Assumptions of Judgements

The discount rate implicit within each lease is generally not readily determinable, therefore, the Company uses its estimated incremental borrowing rate in determining the present value of lease payments. The incremental borrowing rate is determined based on the Company’s recent debt issuances, lease term, and the currency in which lease payments are made.

Significant assumptions are provided in the following table.

	As Of November 2, 2019

Weighted-average remaining lease term (in years)		2.56
Weighted average discount rate		5.17	%

Amounts Recognized in the Financial Statements

Balance sheet classification of right of use assets and lease liabilities are presented in the following table.

	As Of November 2, 2019
	(in thousands)

Right of use assets (included in non-current assets)	$	5,771
Lease liabilities:
Current	$	1,754
Non-current		4,041
Total lease liabilities	$	5,795

Operating lease expense of $0.6 million for the three months ending November 2, 2019 is included in selling, general and administrative expenses on the condensed consolidated statements operations. Short-term lease expense, sublease income, and variable lease expenses were not material for the three months ending November 2, 2019.

Page 13 of 27

Maturities of Operating Lease Liabilities

Maturities of operating lease liabilities as of November 2, 2019 are provided in the following table.

Fiscal Year Ending July 31	As Of November 2, 2019
	(in thousands)

Remainder of fiscal year 2020	$	1,610
2021		1,880
2022		1,384
2023		928
2024		453
Thereafter		59
Total undiscounted lease payments		6,314
Less: imputed interest		(519	)
Present value of lease liabilities	$	5,795

10.	Income Taxes

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 ~~estimated~~Company’s effective tax rate ~~decreased~~was toa 17benefit of 12.52% ~~for~~and ~~the nine months ended April 27, 2019 from 46~~57.24% for the ~~nine~~three months ended ~~April~~November 282, ~~2018.~~2019 ~~Unfavorable~~and ~~permanent~~October ~~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~~ 27, ~~2019.~~2018, respectively. The ~~decrease in the estimated~~ effective tax rate for the ~~nine~~three months ended ~~April~~November 272, 2019 was ~~resulted~~less ~~mainly~~than ~~from changes in~~ the ~~pre-tax~~statutory ~~earnings of the Company’s~~ U.S. ~~operations~~federal inrate ~~the current fiscal year and from the impact~~ of ~~changes~~21% indue ~~U.S.~~mainly ~~corporate~~to ~~income tax regulations included in~~ the ~~Tax~~following ~~Cuts and Jobs Act enacted in December 2017, which included~~factors:

• AContinued ~~reduction~~application inof ~~the~~unfavorable ~~U.S.~~permanent ~~statutory corporate income~~ tax ~~rate~~adjustments pertaining to ~~21%~~global ~~for~~low-taxed ~~the~~intangible ~~nine~~income ~~months~~in ~~ended~~the ~~April~~U.S. ~~27,~~resulting ~~2019,~~from ~~compared~~tax ~~with~~reform alegislation ~~blended~~enacted ~~rate~~during offiscal ~~26%~~year ~~for the nine months ended April 28,~~ 2018.; and

• ~~Certain~~Income ~~one-time~~from ~~tax~~operations ~~items,~~in ~~including~~Peru ~~revaluation~~are ofnot ~~deferred~~taxed ~~tax~~in ~~assets and liabilities and~~ the ~~effect of a new territorial tax system, that increased the~~ Company’s ~~federal income~~ tax ~~expense~~provision bydue to a ~~combined~~valuation ~~$0.4~~allowance ~~million~~recorded ~~for~~against ~~the~~deferred ~~nine-months ended April 28, 2018. The Company did not record any similar or other unusual adjustments to federal income~~ tax ~~expense during the nine months ended April 27, 2019~~assets.

11. Shareholders’' Equity

The following ~~tables~~table ~~provide~~provides ~~reconciliations~~a reconciliation of the changes in consolidated shareholders’ equity for the three months ended ~~April~~November 272, 2019 ~~and April 28, 2018~~. ~~Amounts for the three months ended April 28, 2018 have been restated for the GAC Deconsolidation Adjustments and Out of Period Adjustments described in Note 2.~~

	Three Months Ended April 27, 2019
	Three Months Ended November 2, 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
Balance at July 31, 2019		32		12			16,964		18,687			(2,098	)		(729	)		907
Net (loss) income		-		-			-		(1,~~030~~527	)		-			-			76127
Cash dividends declared ($0.20 per share)		-		-			-		(864	)		-			-			-
Foreign currency translation adjustment		-		-			-		-			(175	)		-			(39	)
Conversion of Class B common stock to Class A common stock		1		(1	)		-		-			-			-			-
Share-based compensation expense		-		-			34		-			-			-			-
Foreign currency translation adjustment		-		-			-		-			14			-			(3	)
Distributions to noncontrolling interests		-		-			-		-			-			-			(6	)
Share-based compensation expense		-		-			33		-			-			-			-
Purchase of additional noncontrolling interests																		7
Distributions to noncontrolling interests		-		-			-		-			-			-			(61	)
Balance at November 2, 2019	$	32	$	12		$	16,998	$	17,160		$	(2,273	)	$	(729	)	$	996
Purchase of additional noncontrolling interests		-		-			-		-			-			-			(102	)
Balance at April 27, 2019	$	32	$	12		$	17,662	$	18,645		$	(1,879	)	$	(884	)	$	394

Page 2114 of 3827

	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 table provides a reconciliation of the changes in consolidated shareholders’ equity for the three months ended October 27, 2018.

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 Out of Period Adjustments described in Note 2.

	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		-		-			-		(120	)		-			-			5
Foreign currency translation adjustment		-		-			-		-			(67	)		-			(60	)
Conversion of Class B common stock to Class A common stock		1		(1	)		-		-			-			-			-
Issuance of stock under stock award plan		-		-			4		-			-			23			-
Share-based compensation expense		-		-			33		-			-			-			-
Distributions to noncontrolling interests		-		-			-		-			-			-			(4	)

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

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

~~Page~~In 22addition, holders of 38Class A Common Stock are eligible to receive dividends in excess of (and not less than) those paid to holders of Class B Common Stock. Holders of Class B Common Stock 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.

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 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.

Concurrently with the execution and delivery of the Merger Agreement, Frank B. Silvestro, Ronald L. Frank, Gerald A. Strobel, Marshall A. Heinberg, Michael C. Gross, Michael El-Hillow, the Gerhard J. Neumaier Testamentary Trust, Justin C. Jacobs and Mill Road Capital II, L.P. (the “Supporting Stockholders”) entered into voting and support agreements with WSP (the “Voting Agreements”) with respect to all Company Shares and other Subject Securities (as defined in the Voting Agreements) beneficially owned or owned of record by the Supporting Stockholders (the “Voting Agreement Shares”). Upon the closing of the transaction contemplated by the Merger Agreement, the Stockholders’ Agreement and the Voting Agreements shall terminate.

Cash Dividends

The Company paid $10.79 million of cash dividends during the ~~nine~~three months ended ~~April~~November 272, 2019 and ~~April~~October 2827, 2018, ~~approximately~~that ~~half of which~~ were 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~~Common ~~stock~~Stock (the “Stock Repurchase Program”). As of ~~April~~November 282, ~~2018~~2019, the Company had repurchased 122,918 shares of Class A ~~stock~~Common 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~~November 272, 2019 or ~~the~~October ~~three or nine months ended April 28~~27, 2018.

Page 15 of 27

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 Company did not acquire additional interest in any of its majority-owned subsidiaries during the three months ended November 2, 2019 or October 27, 2018.

As of July 31, 2018, the Company held an 87.88% ownership interest in Lowham-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 ownership interest in Lowham to 100%.

Accumulated Other Comprehensive Loss

~~The~~Accumulated ~~components~~other comprehensive loss is comprised of ~~accumulated~~$2.3 ~~other~~million ~~comprehensive~~and ~~loss~~$2.1 ~~are~~million ~~summarized~~of inunrealized ~~the~~net ~~following~~foreign ~~table~~currency translation losses at November 2, 2019 and July 31, 2019, respectively.

	April 27, 2019			July 31, 2018
	(in thousands)
Unrealized net foreign currency translation losses	$	(1,879	)	$	(1,880	)
Unrealized net investment (losses) gains on available for sale investments		---			(5	)
Total accumulated other comprehensive loss	$	(1,879	)	$	(1,885	)

Page 23 of 38

12.	Earnings Per Share

~~The~~Basic ~~Company calculates basic~~ and diluted earnings per share (“EPS”) are computed by dividing the net income attributable to 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~~(defined in Note 11, ~~in particular the right~~ of ~~the~~these ~~holders~~condensed ofconsolidated ~~the~~financial 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 stockstatements), 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~~are be included in the computation of earnings per share pursuant to the two-class method. ~~The~~As ~~resulting~~a ~~impact~~result, ~~was to include~~ unvested restricted shares are included 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 27, 2019			April 28, 2018 (Restated)			April 27, 2019			April 28, 2018 (Restated)
	November 2, 2019			October 27, 2018
	(in thousands, except share and per share amounts)
Net (loss) income attributable to Ecology and Environment Inc.	$	(1,030	)	$	69		$	(1,459	)	$	138
Net loss attributable to Ecology and Environment Inc.	$	(1,527	)	$	(120	)
Dividends declared		~~(864~~---	)		~~(860~~---	)		~~(864~~	)		~~(860~~	)
Distributions in excess of earnings	$	(1,894	)	$	(791	)	$	(2,323	)	$	(722	)
Balance at end of period	$	(1,527	)	$	(120	)
Weighted-average common shares outstanding - basic and diluted		4,~~315~~329,~~135~~858			4,~~301~~313,~~604~~930			~~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	)
Undistributed (losses) earnings per share - basic and diluted		(0.35	)		(0.03	)
Net (loss) income per common share - basic and diluted	$	(0.24	)	$	0.02		$	(0.34	)	$	0.03
Net income per common share - basic and diluted	$	(0.35	)	$	(0.03	)

13.	Segment Reporting

Management generally assesses operating performance and makes strategic decisions based on the geographic regions in which the Company does business. The Company reports separate operating segment information for its U.S. and South American operations. Gross revenue, net income (loss) attributable to EEI and total assets by operating segment are summarized in the following tables.

	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

Page 16 of 27

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.

	Three Months Ended
	November 2, 2019		October 27, 2018
	(in thousands)

Gross revenue:
U.S. operations	$	17,778	$	18,011
South American operations		4,435		3,741
Total	$	22,213	$	21,752

Page 24 of 38

Net income (loss) attributable to EEI:
U.S. operations (a)	$	(1,669	)	$	(107	)
South American operations (b)		142			(13	)
Total	$	(1,527	)	$	(120	)

	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

(a)

Includes depreciation and amortization expense of $0.1 million and $0.2 million for the three months ended November 2, 2019 and October 27, 2018, respectively.

(ab) Includes depreciation and amortization expense of $0.21 million for the three months ended ~~April~~November 272, 2019 and ~~April~~October ~~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.

	November 2, 2019		July 31, 2019
	(in thousands)

Total assets:
U.S. operations	$	47,478	$	43,842
South American operations		7,938		7,968
Total	$	55,416	$	51,810

	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

Gross revenue from U.S. federal government contracts was $3.5 million and $3.1 million for the three months ended November 2, 2019 and October 27, 2018, respectively.

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 Ltda. (“E&E 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 approximately 0.5 million ~~Reais~~Reals against E&E Brazil. The Institute also filed Notices of Infraction against four employees of E&E Brazil alleging the same claims and imposed fines against those individuals that, in the aggregate, were equal to the fine imposed against E&E Brazil. No claim has been made against EEI.

E&E Brazil has filed court claims appealing the administrative decisions of the Institute for E&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 Brazil had obtained the necessary permits for the surveys and collections of specimens under applicable Brazilian regulations and that the protected conservation area is not clearly marked to show its boundaries. The claim of violations against one of the four employees was dismissed. The remaining three employees have fines assessed against them that are being appealed through the federal courts. Violations against E&E Brazil are pending agency determination. At ~~April~~July 2731, 2019, the Company recorded a reserve of approximately $0.4 million in other accrued liabilities related to these claims.

Page 2517 of 3827

~~Item~~On 2October 8 and 14, 2019, two complaints challenging the Merger were filed in the United States District Court for the Southern District of New York, captioned Jordan Rosenblatt v. ~~Management~~Ecology & Environment, Inc., et al. and Randall Meidenbauer v. Ecology & Environment Inc. et al., respectively. The Rosenblatt complaint was filed as a putative class action on behalf of the public shareholders of the Company, while the Meidenbauer complaint was filed as an individual action on behalf of the named plaintiff only. Both complaints name as defendants the Company and the members of the Company’s ~~Discussion~~Board of Directors. The Rosenblatt complaint generally alleges violations of federal securities laws with respect to purported disclosure deficiencies in the preliminary proxy statement for the Merger that the Company filed with the SEC on September 26, 2019, and ~~Analysis~~the Meidenbauer complaint generally alleges violations of ~~Financial~~federal ~~Condition~~securities laws with respect to purported disclosure deficiencies in the definitive proxy statement for the Merger that the Company filed with the SEC on October 8, 2019 (the “Definitive Proxy Statement”). The complaints seek various forms of relief, including a preliminary injunction preventing the Company from proceeding with the stockholder meeting or the consummation of the Merger until the alleged material information omitted from the Definitive Proxy Statement is disclosed, rescission of the Merger if it is consummated, damages, attorneys’ fees and ~~Results~~expenses. On October 31, 2019, the Company received a demand letter from an additional stockholder alleging violations of ~~Operations~~federal securities laws with respect to purported disclosure deficiencies in the Definitive Proxy Statement and threatening to file a lawsuit unless certain supplemental disclosures were made by the Company regarding the Merger.

On November 7, 2019, E&E filed a supplement to the Definitive Proxy Statement disclosing, among other things, certain additional information in the sections “The Merger—Background of the Merger”, “The Merger— Opinion of E&E’s Financial Advisor” and “The Merger— Certain Unaudited Prospective Financial Information” (the “Responsive Disclosures”) in response to the two complaints and the demand letter and solely for the purpose of mooting the allegations contained therein. In light of the Responsive Disclosures, counsel for each of the plaintiffs who had filed the complaints and sent the demand letter informed counsel for the Company that they considered their claims to be moot, and would voluntarily dismiss their complaints (or, in the case of the plaintiff that submitted a demand letter, would refrain from filing a complaint), subject in each case to the plaintiff’s right to seek a mootness fee. For the avoidance of doubt, the Company denies the allegations of the two complaints and demand letter, denies any violations of law, and denies any obligation to pay a mootness fee or other compensation in connection with the Responsive Disclosures. The Company believes that the Definitive Proxy Statement disclosed all material information required to be disclosed therein and denies that the Responsive Disclosures are material or are otherwise required to be disclosed. The Company disclosed the Responsive Disclosures following discussions with counsel for plaintiffs and the stockholder from whom the Company received the demand letter and solely to avoid the expense and distraction of litigation. Nothing in the Responsive Disclosures shall be deemed an admission of the legal necessity or materiality under applicable law of any of the Responsive Disclosures.

Page 18 of 27

Item 2.

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

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

Agreement and Plan of Merger

On August 28, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with WSP Global Inc., a Canadian corporation (“WSP”), and Everest Acquisition Corp., a New York corporation and an indirect wholly owned subsidiary of WSP (“Merger Sub”). Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company(the “Merger”) with the Company continuing as the surviving corporation.

The consummation of the Merger is subject to the satisfaction or waiver of specified closing conditions, including: (i) the absence of an order, injunction or law issued by a court or governmental authority of competent jurisdiction that makes the consummation of the Merger illegal; (ii) the absence of legal proceedings brought by a governmental authority of competent jurisdiction seeking to restrain or prohibit the Merger; (iii) the clearance of the Merger by the Committee on Foreign Investment in the United States without the imposition of any burdensome conditions, as defined in the Merger Agreement; and (iv) subject to certain materiality qualifications, the continued accuracy of the Company’s representations and warranties and continued compliance by the Company with covenants and obligations (to be performed at or prior to the closing of the Merger).

If the Merger Agreement is terminated in certain circumstances, the Company may be required to pay WSP a termination fee of $4.0 million or reimburse WSP for certain expenses up to $1.75 million.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on August 28, 2019. Additional information about the Merger and the Merger Agreement is set forth in the Company’s definitive proxy statement filed with the SEC on October 8, 2019 and the proxy supplement filed on November 7, 2019.

On November 20, 2019, the Company held a special meeting of the Company’s stockholders at which a proposal to adopt the Merger Agreement was approved by the requisite vote of the Company’s stockholders, as more fully described in the Company’s Current Report on Form 8-K/A filed with the SEC on December 4, 2019.

During the quarter ended November 2, 2019, the Company’s U.S. operations recorded approximately $1.5 million of expenses in selling, general and administrative expenses related to the Merger.

Executive Overview

WeEEI ~~reported~~was incorporated in February 1970 as a ~~consolidated~~global ~~net~~broad-based ~~loss~~environmental ~~attributable~~consulting tofirm ~~EEI~~with ofan ~~$1.0~~underlying ~~million~~philosophy ~~($0.24~~of ~~per~~providing ~~share)~~professional ~~for~~services in the ~~quarter~~regions ~~ended~~it ~~April~~serves ~~27,~~so ~~2019,~~that ~~compared~~sustainable ~~with~~economic ~~consolidated~~and ~~net~~human development ~~income~~may ~~attributable~~proceed towith ~~EEI~~acceptable ofimpact ~~$0.1~~on ~~million ($0~~the environment.02 Our ~~per~~management ~~share)~~generally ~~for~~assesses ~~the~~operating ~~third~~performance ~~quarter~~and ofmakes strategic decisions based on the ~~prior~~geographic ~~fiscal~~regions ~~year~~in which we do business. ~~For~~During the ~~nine~~quarter ~~months~~ ended ~~April~~November 272, 2019, weEEI ~~reported~~had adirect ~~consolidated~~and ~~net~~indirect ~~loss~~ownership ~~attributable~~in tofour ~~EEI~~significant ofactive ~~$1.5~~wholly ~~million~~owned and majority-owned operating subsidiaries in three countries (~~$0.34~~the ~~per~~United ~~share)~~States of America, ~~compared~~Brazil ~~with~~and ~~consolidated~~Peru), ~~net~~and ~~income attributable~~one tomajority-owned ~~EEI~~equity ofinvestment $0in Chile.1 We report ~~million~~separate ~~($0.03~~operating ~~per~~segment ~~share)~~information for ~~the~~our ~~first~~U.S. ~~nine~~and ~~months~~South ofAmerican ~~the prior year~~operations.

~~Our~~Page ~~operating~~19 ~~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.27

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 significant active subsidiaries ~~during~~as ~~the~~of ~~nine~~November ~~months ended April 27~~2, 2019 are listed in the following table.

Name	Percentage of Subsidiary Capital Stock Owned by the Company		~~Operating Segment~~	Operating Segment
Consolidated Subsidiaries:
Ecology & Environment Engineering, Inc.	~~100.00%~~	100.00	~~United States~~%	United States
Walsh Environmental, LLC	~~100.00%~~	100.00	~~United States~~%	United States
Gustavson Associates, LLC	~~83.60%~~	83.60	~~United States~~%	United States
Walsh Peru, S.A. Ingenieros y Cientificos Consultores (“Walsh Peru”)	~~74.78%~~	74.78	~~South America~~%	South America
ecology and environment do brasil Ltda. (“E&E Brazil”)	~~72.00%~~	72.00	~~South America~~%	South America
Servicios Ambientales Walsh, S.A. (“Walsh Ecuador”) (a)	51.00%		South America
Majority-Owned Equity Investment (a):
Majority-Owned Equity Investment:
Gestión Ambiental Consultores S.A. (“GAC”)		52.48	%	South America
Gestión Ambiental Consultores S.A. (“GAC”) (b)	52.48%		South America

~~(a) The Company~~EEI’s equity investment in ~~Walsh~~GAC ~~Ecuador~~is ~~was~~reported ~~sold~~as toan ~~minority~~“equity ~~shareholders~~method ~~effective~~investment” ~~February~~on 1,the ~~2019.~~condensed ~~The~~consolidated ~~sale~~balance sheets. EEI’s share of ~~Walsh~~GAC’s ~~Ecuador~~earnings is ~~not~~reported ~~expected~~as to“income ~~have~~from aequity ~~material~~method ~~impact~~investment” on the ~~Company's~~condensed consolidated ~~results~~ statements of operations, ~~financial~~and ~~position~~as ora ~~cash~~component ~~flows~~of ~~for~~the ~~future~~South ~~reporting~~American ~~periods~~operating segment.

~~(b)~~The ~~EEI’s~~following ~~equity~~table ~~investment~~includes inselected ~~GAC~~financial isinformation ~~reported~~by asoperating ansegment ~~“equity~~for ~~method~~the ~~investment”~~three onmonths ~~the~~ended ~~consolidated~~November ~~balance sheets~~2, 2019 and asOctober a27, ~~component~~2018 (the first quarters of ~~the~~fiscal ~~South~~years ~~American~~2020 ~~operating~~and ~~segment~~2019, respectively). Refer ~~EEI’s~~to ~~share~~“Results of ~~GAC’s~~Operations” ~~earnings~~below isfor ~~reported~~additional ascommentary ~~“income~~regarding ~~from~~the ~~equity~~Company’s ~~method~~revenues ~~investment”~~and onexpenses ~~the~~for ~~consolidated~~these ~~statements~~reporting ~~of operations~~periods.

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

	Three Months Ended
	November 2, 2019			October 27, 2018			$ Change			% Change
	($ in thousands)
U.S. operations:
Gross revenue	$	17,778		$	18,011		$	(233	)		(1	)%
Gross revenue less subcontract costs		15,096			14,200			896			6	%
Direct cost of professional services and other direct operating expenses		7,553			6,496			1,057			16	%
Gross margin		7,543			7,704			(161	)		(2	)%
Selling, general and administrative expenses		9,197			7,836			1,361			17	%
Net income (loss) attributable to EEI		(1,669	)		(107	)		(1,562	)		(a)	%

South American operations:
Gross revenue	$	4,435		$	3,741		$	694			19	%
Gross revenue less subcontract costs		3,645			2,978			667			22	%
Direct cost of professional services and other direct operating expenses		1,990			1,638			352			21	%
Gross margin		1,655			1,340			315			24	%
Selling, general and administrative expenses		1,518			1,364			154			11	%
Income from equity method investment		79			60			19			32	%
Net income (loss) attributable to EEI		142			(13	)		155			(a)	%

Consolidated totals:
Gross revenue	$	22,213		$	21,752		$	461			2	%
Gross revenue less subcontract costs		18,741			17,178			1,563			9	%
Direct cost of professional services and other direct operating expenses		9,543			8,134			1,409			17	%
Gross margin		9,198			9,044			154			2	%
Selling, general and administrative expenses		10,715			9,200			1,515			16	%
Income from equity method investment		79			60			19			32	%
Net income (loss) attributable to EEI		(1,527	)		(120	)		(1,407	)		(a)	%

	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

(a)

percentage change not relevant due to relatively immaterial amounts reported for three months ended October 27, 2018.

~~Page~~Gross 26margin represents gross revenue less subcontract costs and direct cost of 38services. As a percentage of gross revenue, the consolidated gross margin percentage of 41.4% for the first quarter of fiscal year 2020 decreased slightly from the first quarter of the prior year. The current period increase in project related expenses (as a percentage of prior year project related expenses) exceeded the increase in gross revenue less subcontract costs in our U.S. operating segment.

~~The~~Page ~~following~~20 ~~table includes selected financial information by operating segment for the three months ended April 27, 2019 and April 28, 2018 (the third quarters~~ of ~~fiscal years 2019 and 2018, respectively). Refer to “Results of Operations” below for additional commentary regarding the Company’s revenues and expenses for these reporting periods.~~27

	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 months ended April 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.

Page 27 of 38

Results of Operations

Gross Revenue and Gross Revenue less Subcontract Costs

Gross revenue byfor ~~contract~~our ~~type~~operating segments is summarized by contract type in the following table.

	Three Months Ended				~~Nine Months Ended~~
	April 27, 2019		April 28, 2018 (Restated)		April 27, 2019		April 28, 2018 (Restated)
	November 2, 2019		October 27, 2018
	(in thousands)
Gross revenue from time and materials contracts:
Time and materials	$	10,712	$	10,000	$	29,610	$	28,765
U.S. operations	$	9,965	$	9,257
Fixed price		7,715		7,398		22,054		24,684
South American operations		40		-
Cost-plus		3,348		3,279		12,116		14,622
Total gross revenue from time and materials contracts	$	10,005	$	9,257
Consolidated gross revenue	$	21,775	$	20,677	$	63,780	$	68,071
Gross revenue from fixed price contracts:
U.S. operations	$	3,650	$	3,612
South American operations		4,395		3,741
Total gross revenue from fixed price contracts	$	8,045	$	7,353
Gross revenue from cost-plus contracts:
U.S. operations	$	4,163	$	5,142
South American operations		-		-
Total gross revenue from cost-plus contracts	$	4,163	$	5,142
Gross revenue from all contracts:
U.S. operations	$	17,778	$	18,011
South American operations		4,435		3,741
Consolidated gross revenue	$	22,213	$	21,752

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

	Three Months Ended
Operating Segment	~~April~~November 272, 2019		~~April~~October 2827, 2018 ~~(Restated)~~		$ Change			% Change
	($ in thousands)
U.S. operations	$	15,096	$	14,200	$	896			6	%
U.S. operations	$	14,839	$	14,725	$	114			1	%
South American operations:
Chile		973		1,218		(245	)		(20	)%
Peru		1,167		912		255			28	%
Brazil		2,~~971~~478		2,~~062~~028		~~909~~450			4422	%
Other		---		3238		(3238	)		~~(100~~---	(a)%
Total South American operations		3,~~944~~645		32,~~312~~978		~~632~~667			1922	%
Consolidated gross revenue less subcontract costs	$	18,~~783~~741	$	1817,~~037~~178	$	~~746~~1,563			49	%

	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	)%

(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 increased 4% during the third quarter of 2019, driven mainly by higher revenues from subsidiary operations in South America. Consolidated revenues decreased 4% for the first nine months of 2019, mainly due to lower revenues from U.S. operations.

U.S. Operations

Revenue from our U.S. operations increased 16% during the ~~third~~first quarter ~~and~~of ~~decreased~~fiscal 5%year ~~during~~2020, ~~first~~as ~~nine~~compared ~~months~~with the first quarter of ~~fiscal~~the prior year, ~~2019~~as ~~compared~~slightly ~~with~~lower gross revenues were more than offset by 30% reduction in subcontract expenses on our projects. During the ~~same~~current ~~periods~~quarter, ofwe recorded increased project activity and revenue in our transmission, resiliency and federal site assessment and remediation sectors, while activity in our pipeline, renewables and restoration sectors was consistent with the prior ~~fiscal~~ year. These positive factors were partially offset by lower project activity and revenue in our liquified natural gas and federal water and lands sectors.

~~During~~Page ~~the~~21 ~~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 2019.27

South American Operations

Revenue from our ~~Brazilian~~Peruvian operations increased ~~44% and~~ 28% during the ~~third~~first quarter ~~and first nine months~~ of fiscal year ~~2019,~~2020 ~~respectively,~~ compared with the ~~same periods~~first quarter of the prior year~~. In local currency~~, ~~revenue from our Brazilian operations increased 62% for the third quarter and 47% for the first nine months of 2019~~ due ~~mainly~~ to ~~increased~~higher project volumes with commercial clients in ~~the transmission,~~within ~~energy~~mining and resilience ~~mining~~planning ~~sectors~~markets. ~~Strengthening of the U.S. dollar compared to the Brazilian Real during the first nine months of fiscal year 2019 significantly offset the positive impact of higher project volumes.~~

Revenue from our ~~Peruvian~~Brazilian operations ~~decreased~~increased 2022% ~~and 34%~~ during the ~~third~~first quarter ~~and first nine months~~ of fiscal year ~~2019,~~2020 ~~respectively,~~ compared with the ~~same~~first ~~periods~~quarter of the prior year. In local currency, revenue from our Brazilian operations increased 21% due mainly to ~~lower~~increased project volumes with commercial clients in the transmission, energy ~~sector~~and mining sectors.

Cost of Professional Services and Other Direct Operating Expenses

Cost of professional services and other direct operating expenses represents labor and other direct costs of providing services to our clients under our project agreements. These costs, and fluctuations in these costs, generally correlate directly with related project work volumes and revenues. Cost of professional services and other direct operating expenses by operating segment ~~are~~is summarized in the following ~~tables~~table.

	Three Months Ended
Operating Segment	~~April~~November 272, 2019		~~April~~October 2827, 2018 ~~(Restated)~~		$ Change			% Change
	($ in thousands)
U.S. operations	$	67,~~773~~553	$	6,~~438~~496	$	~~335~~1,057			516	%
South American operations:
Peru		~~385~~410		~~425~~400		~~(40~~10	)		(93	)%
Brazil		1,~~652~~580		1,~~025~~225		~~627~~355			6129	%
Other		---		2213		(2213	)		~~(100~~---	(a)%
Total South American operations		21,~~037~~990		1,~~472~~638		~~565~~352			3821	%
Consolidated cost of professional services and other direct operating expenses	$	89,~~810~~543	$	78,~~910~~134	$	~~900~~1,409			1117	%

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	%

(a)

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

Consolidated ~~Cost~~cost of professional services and other direct operating expenses increased 1117% ~~and decreased 1%~~ during the ~~third~~current quarter ~~and first nine months of fiscal year 2019, respectively,~~ compared with the same ~~periods~~period oflast ~~the prior~~ year. ~~During~~Higher ~~the three and nine months ended April 27, 2019, fluctuations in~~ direct costs ~~for~~in our U.S. and ~~South~~Brazilian ~~American~~ operations, ~~generally~~were due ~~corresponded~~mainly ~~with~~to ~~fluctuations~~higher inproject ~~revenue~~revenues.

Selling, General and Administrative Expenses

Selling, general and administrative expenses represent operating costs not directly associated with the generation of revenue. Selling, general and administrative expenses by operating segment are summarized in the following ~~tables~~table.

	Three Months Ended
Operating Segment	~~April~~November 272, 2019		~~April~~October 2827, 2018 ~~(Restated)~~		$ Change			% Change
	($ in thousands)		~~($ in thousands)~~
U.S. operations	$	89,~~780~~197	$	87,~~440~~836	$	~~340~~1,361			417	%
South American operations:
Peru		~~744~~660		~~713~~665		31(5	)		4(1	)%
Brazil		~~980~~858		~~780~~669		~~200~~189			2628	%
Other		---		1630		(1630	)		~~(100~~---	(a)%
Total South American operations		1,~~724~~518		1,~~509~~364		~~215~~154			1411	%
Consolidated selling, general and administrative expenses	$	10,~~504~~715	$	9,~~949~~200	$	~~555~~1,515			616	%

	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	)		---	%

(a)

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

Page 3022 of 3827

U.S. Operations

Selling, general and administrative expenses increased 417% during the ~~third~~first quarter ~~and~~of ~~were~~fiscal ~~relatively~~year ~~unchanged~~2020 ~~during~~compared ~~first~~with ~~nine~~the ~~months~~same ofquarter ~~fiscal~~last year. During the quarter ended November 2, 2019, ~~compared with~~our ~~the~~U.S. ~~same~~operations ~~periods~~recorded approximately $1.5 million of ~~the~~expenses ~~prior~~related ~~year~~to the Merger.

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 of $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~~Brazilian operations increased 428% ~~for~~during the ~~third~~first quarter ~~and~~of ~~decreased~~fiscal ~~10%~~year ~~for~~2020 ~~the~~compared ~~first~~with ~~nine~~the ~~months~~same ofquarter ~~fiscal~~last year ~~2019,~~. In ~~respectively~~local currency, ~~compared~~staff ~~with~~and ~~the~~other ~~same~~costs ~~periods~~increased of26% ~~the~~due ~~prior~~to ~~year. Management~~increased project ~~implemented~~proposal ~~targeted~~activity ~~cost~~and ~~reductions~~increased ingeneral ~~response~~and administrative costs to ~~lower~~support higher project volumes and ~~lower~~expanded ~~expectations for future work~~operations.

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 2019, respectively, compared with the same periods of the prior year. In local currency, staff and other costs increased 28% during the first nine months of 2019 due to increased project proposal activity and increased general and administrative costs to support higher project volumes and expanded operations. Strengthening of the U.S. dollar compared to the 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 $21.47 million and $2.1 million at ~~April~~November 272, 2019 and July 31, 2018, respectively. InThe ~~April~~Company’s ~~2019,~~ownership ~~GAC~~percentage ~~issued additional~~was ~~shares~~52.48% toat ~~two~~both ofdates. The equity ~~its~~method ~~senior~~investment ~~employees,~~in ~~which~~GAC ~~effectively~~is ~~reduced~~included within the Company’s ~~ownership~~U.S. ~~percentage~~operations tooperating 52segment.~~48%~~ Activity asrecorded offor ~~April~~the ~~27,~~Company’s ~~2019~~equity ~~from~~method ~~55.10%~~investment atis ~~July~~summarized ~~31,~~in ~~2018~~the following table.

Page 31 of 38

	Three Months Ended
	November 2, 2019			October 27, 2018
	(in thousands)

Equity investment carrying value at beginning of period	$	1,658		$	2,058
GAC net income attributable to EEI		79			60
EEI’s portion of other comprehensive income recorded by GAC		(53	)		---
Equity investment carrying value at end of period	$	1,684		$	2,118

The ~~equity~~results ~~method~~of ~~investment in~~ GAC ~~is included within the Company~~’s ~~South~~operations ~~American operating segment. Activity recorded~~ for the ~~Company’s~~quarters ~~equity method investment during the nine months~~ ended ~~April~~November 272, 2019 and ~~April~~October 2827, 2018 isare summarized in the following table.

	Nine Months Ended
	Three Months Ended
	April 27, 2019			April 28, 2018 (Restated)
	November 2, 2019			October 27, 2018
	(in thousands)
Equity investment carrying value at beginning of period	$	2,058		$	1,464
Gross revenue	$	2,892		$	2,852
GAC net income attributable to EEI		295			376
Direct cost of services and subcontract costs		1,829			1,974
Dividends declared and paid during the period		(348	)		---
Income from operations		229			157
Equity investment carrying value at end of period	$	2,005		$	1,840
Net income		151			109
Net income attributable to EEI		79			60

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

During interim reporting periods, ~~the~~our 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~~The ~~estimated~~Company’s effective tax rate ~~decreased~~was toa 17benefit of 12.52% ~~for~~and ~~the nine months ended April 27, 2019 from 46~~57.24% for the ~~nine~~three months ended ~~April~~November 282, ~~2018.~~2019 ~~Unfavorable~~and ~~permanent~~October ~~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~~ 27, ~~2019.~~2018, respectively. The ~~decrease in the estimated~~ effective tax rate for the ~~nine~~three months ended ~~April~~November 272, 2019 ~~resulted~~was ~~mainly~~less ~~from changes~~than in the ~~pre-tax earnings of our~~ statutory U.S. ~~operations~~federal inrate ~~the current fiscal year and from the impact~~ of ~~changes~~21% indue ~~U.S.~~mainly ~~corporate~~to ~~income tax regulations included in~~ the ~~Tax~~following ~~Cuts and Jobs Act enacted in December 2017, which included~~factors:

• ~~Certain~~Income ~~one-time~~from ~~tax~~operations ~~items,~~in ~~including~~Peru ~~revaluation~~are ofnot ~~deferred~~taxed ~~tax~~in ~~assets and liabilities and~~ the ~~effect~~Company’s ~~of a new territorial~~ tax ~~system,~~provision ~~that~~due ~~increased~~to ~~our federal income tax expense by~~ a ~~combined~~valuation ~~$0.4~~allowance ~~million~~recorded ~~for~~against ~~the~~deferred ~~nine-months ended April 28, 2018. We did not record any similar or other unusual adjustments to federal income~~ tax ~~expense during the nine months ended April 27, 2019~~assets.

Page 23 of 27

•

Taxable income from operations in Brazil which are taxed at a 34% rate, which is higher that the U.S. statutory federal rate.

Liquidity and Capital Resources

Cash, cash equivalents and restricted cash decreased $3.93 million during the first ~~nine~~quarter ~~months~~ of fiscal year 2019~~. Historically~~, ~~cash~~due ~~generated~~mainly 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~~following ~~Reduction~~factors ~~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.activity:

• We paid $0.9 million of dividends during the first quarter of fiscal year 2020 that were declared during the prior quarter. Our Board of Directors considers the approval of dividends to our shareholders on a discretionary basis 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~~• 32During the first quarter of 38fiscal year 2019, our U.S. operations incurred and paid approximately $1.5 million of expenses related to the Merger.

~~Our~~• ~~U.S.~~A ~~operations~~decline ~~had~~in ~~$32.5~~revenue ~~million~~and ofprofits ~~unsecured~~from ~~lines~~our ~~of credit available to fund working capital requirements~~U. ~~There were no cash advances and less than $0~~S.1 ~~million~~operations ofduring ~~letters~~fiscal ~~of credit~~year ~~outstanding under these lines of credit at April 27,~~ 2019~~. Our~~ ~~lenders~~had ~~have~~a ~~reaffirmed~~detrimental ~~the~~impact ~~lines~~on ~~of credit within the past twelve months. We believe that available~~ cash ~~balances,~~generated ~~anticipated~~from ~~cash~~operating ~~flows~~activities ~~and our available lines of credit will be sufficient to cover working capital requirements of our U.S. operations~~ during the ~~next~~first ~~twelve~~quarter ~~months~~of ~~and~~fiscal ~~the~~year ~~foreseeable future~~2020.

~~Our~~• ~~South~~Higher ~~American~~revenue ~~operations~~from ~~had~~our ~~$3.4~~Peruvian ~~million~~operations ofduring ~~unsecured~~the ~~lines~~first ofquarter ~~credit available to fund working capital requirements. There were $0.6 million~~ of ~~cash~~fiscal ~~advances~~year ~~and~~2020 ~~$1.6~~required ~~million of~~initial ~~letters~~resource ofoutlays ~~credit~~on ~~outstanding~~new ~~under~~projects 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 annot ~~impact~~yet onbeen ~~our~~billed ~~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~~collected ~~may~~from ~~challenge~~ our ~~liquidity~~ ~~position in the longer term~~clients. ~~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~~Our ~~cash~~U.S. ~~accumulated~~operations byhad ~~any~~$32.5 ~~foreign~~million ~~subsidiary,~~of ~~beyond~~unsecured ~~that~~lines ~~necessary~~of credit available to fund ~~operations~~working orcapital ~~business~~requirements. There ~~expansion,~~were ~~may~~no becash ~~repatriated~~advances toand ~~the~~less Uthan $0.S.1 atmillion ~~the~~of ~~discretion~~letters of ~~the~~credit ~~Boards~~outstanding ofunder these lines ~~Directors~~ of credit as of ~~the~~November ~~respective~~2, ~~entities~~2019. ~~The~~Our ~~Company~~lenders ~~repatriated~~have ~~$0.2~~reaffirmed ~~million~~the lines of ~~dividends~~credit ~~from~~within ~~foreign~~the ~~subsidiaries~~past twelve months. We believe that available cash balances, ~~net~~anticipated cash flows and our available lines of ~~local~~credit ~~taxes,~~will be sufficient to cover working capital requirements of our U.S. operations during the ~~first~~next ~~quarter~~twelve ofmonths ~~fiscal~~and ~~year~~the ~~2019~~foreseeable future.

~~The~~Our ~~Tax~~South ~~Act~~American ~~resulted~~operations inhad a$3.3 ~~one-time~~million ~~transition~~of ~~tax~~unsecured onlines ~~deemed~~of ~~repatriation~~credit ofavailable ~~historical~~to ~~earnings~~fund ofworking ~~foreign~~capital ~~subsidiaries~~requirements. There were $0.2 million of ~~approximately~~cash advances and $01.53 million of letters of credit outstanding under these lines of credit as of November 2, ~~which~~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 behave ~~paid~~an impact on our operations and liquidity position in South America. Although we currently believe that available cash balances, ~~without~~anticipated ~~incurring~~ cash ~~interest~~flows, byand ~~July~~available 31lines of credit will be sufficient to cover working capital requirements of our South American operations in the near future, ~~2019~~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 Boards 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 2020.

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 our 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 using 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 the following table.

	April 27, 2019		April 28, 2018
	November 2, 2019		July 31, 2019
	(in thousands)
Total firm backlog of uncompleted contracts:
U.S. operations	$	3545,~~725~~896	$	4547,~~981~~795	~~(a)~~
South American operations		14,~~204~~169		1113,~~479~~057
Consolidated totals	$	4960,~~929~~165	$	5760,~~460~~852
Anticipated completion of firm backlog in next twelve months:
U.S. operations	$	2822,~~209~~227	$	32,~~934~~472	~~(a)~~
South American operations		1211,~~187~~461		911,~~265~~262
Consolidated totals	$	4033,~~395~~688	$	4243,~~199~~734

~~(a)~~Page In24 ~~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.~~27

~~Total~~In addition to the firm backlog ~~from~~summarized ~~U.S.~~in ~~operations~~the ~~decreased~~table ~~22%~~above, ~~over~~we ~~the~~also ~~twelve~~have ~~month~~been ~~period~~awarded ~~preceding~~contracts ~~April~~that ~~27,~~are ~~2019,~~partially asor ~~new~~entirely ~~orders~~unfunded, ~~reported~~but ~~as additions~~which are expected to ~~firm~~be ~~backlog~~partially ~~have~~or ~~not~~entirely ~~kept~~funded ~~pace~~during ~~with~~the ~~work~~remaining ~~delivered~~life of onthe ~~active~~associated projects. ~~The~~Total ~~increase~~unfunded ~~in firm~~ backlog ~~for~~approximated ~~our~~$23.7 ~~South~~million ~~American~~and ~~operations~~$16.8 ~~during~~million ~~the~~at ~~twelve~~November ~~months~~2, ~~preceding~~2019 ~~April~~and 27July 31, 2019 ~~was~~respectively. Until these projects are funded, we cannot be certain regarding the ~~result~~value of ~~significant~~gross ~~new~~revenue ~~orders~~ that we ~~outpaced~~ will ~~completion~~recognize ofunder ~~projects~~these contracts.

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 $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 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’'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.

The Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018 includes descriptions of our critical accounting policies related to revenue recognition, allowance for doubtful accounts, goodwill and income taxes.

Update to ~~Revenue~~Leases ~~Recognition~~ Accounting Policy

In ~~May~~March ~~2014~~2016, FASB issued ASU No2016-02. The ~~2014-09,~~main ~~Revenue~~difference ~~from~~between ~~Contracts~~previous ~~with~~U.S. ~~Customers~~GAAP ~~(Topic~~and ~~606) (“~~ASU ~~2014~~2016-~~09”). ASU~~02 ~~2014-09,~~(together aswith ~~amended by~~ subsequent ASUs that amended and clarified the guidance in ASU ~~2014~~2016-~~09,~~02) ~~forms~~is the ~~basis~~recognition ~~for~~of lease ~~FASB~~assets ~~ASC~~and ~~Topic~~lease ~~606~~liabilities ~~(“ASC~~by ~~Topic~~lessees ~~606”),~~for ~~which~~those ~~superseded~~leases ~~previous~~classified ~~authoritative~~as operating leases under previous U.S. GAAP ~~guidance regarding revenue recognition~~. The Company adopted ~~ASC~~the ~~Topic~~provisions ~~606~~of ASU 2016-02 effective August 1, ~~2018. Refer~~2019, ~~to Notes~~using 3the ~~and~~modified 7retrospective approach. The adoption of ~~the~~ASU ~~unaudited~~2016-02 ~~condensed~~did ~~consolidated~~not ~~financial~~have ~~statements~~a ~~included~~material inimpact ~~Item~~on 1the results of ~~this~~operations ~~Form~~or ~~10-Q~~liquidity for ~~additional~~the ~~disclosures~~Company’s ~~regarding~~U.S. or South American operations. On the ~~adoption~~effective ofdate, ~~ASU~~the ~~2014~~recognized new right-09of-use assets and corresponding lease liabilities associated with operating leases of approximately $6.2 million. Refer to Notes 2 and 9 of the accompanying condensed consolidated financial statements for additional information regarding our ~~revenue~~adoption ~~recognition~~of ~~accounting~~ASU ~~policy~~2016-02.

Inflation

Inflation did not have a material impact on our business during the ~~nine~~quarters ~~months~~ ended ~~April~~November 272, 2019 or ~~April~~October 2827, 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 $1.63 million and $1.76 million at ~~April~~November 272, 2019 and July 31, ~~2018~~2019, respectively. Other than these letters of credit, we did not have any off-balance sheet arrangements as of ~~April~~November 272, 2019 or July 31, ~~2018~~2019.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

Disclosure controls and procedures 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 “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.

AsPage of25 ~~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~~As 34of the end of 38the 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. Our Acting Principal Executive Officer and Acting Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at November 2, 2019.

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2018, management concluded that the Company’s internal control over financial reporting was not effective as of July 31, 2018 because of material weaknesses in the Company’s internal control over financial reporting as described below. A material weakness is a deficiency, or 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:

• 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 EEI’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 the three and nine months ended April 28, 2018 have been restated to correct this error.

With input from the Audit Committee, management developed, and is in the process of implementing, a remediation plan to address the material weaknesses as of July 31, 2018 noted above. Specifically, the following controls and procedures will be established or strengthened to address the material weaknesses:

• We will assess our current accounting staff and identify the need to train existing staff resources regarding technical accounting topics and related disclosure requirements that are pertinent to the Company’s operations, including those relating to consolidation, 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 Auditor.

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. Based upon this evaluation, our acting 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 acting 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~~No ~~than certain controls added or improved to address the material weaknesses 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~~November 272, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Page~~Because 35of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of 38any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

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 three months ended November 2, 2019 under this share repurchase program:

(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 27, 2019 under this share repurchase program:

Fiscal Year 2019 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 2019	---	---	---	77,082
September 2019	---	---	---	77,082
October 2019	---	---	---	77,082

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 2018	---	---	---	77,082
September 2018	---	---	---	77,082
October 2018	---	---	---	77,082
November 2018	---	---	---	77,082
December 2018	---	---	---	77,082
January 2019	---	---	---	77,082
February 2019	---	---	---	77,082
March 2019	---	---	---	77,082
April 2019	---	---	---	77,082

Item 3.

Defaults Upon Senior Securities

None.

Page 26 of 27

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 September 19, 2018 to announce the appointment of the Company’s Chairman of the Board, Marshall A. Heinberg, as Interim Executive Chairman, and the appointment of Todd Musterait as President of United States Operations. (c) The Company filed a Current Report on Form 8-K on November 2, 2018 to announce compensation arrangements for Marshall A. Heinberg, Interim Executive Chairman, and Todd Musterait, President of United States Operations.

~~Page~~(b) 36The Company filed a Current Report on Form 8-K on November 20, 2019 (the “Original Report”) to announce that, at a special meeting of 38stockholders held by the Company on November 20, 2019 (the “Special Meeting”), the Company’s stockholders approved the following proposals: (i) a proposal to adopt the Agreement and Plan of Merger, dated as of August 28, 2019 (the “Merger Agreement”), by and among WSP Global Inc., a Canadian corporation, Everest Acquisition Corp., a New York corporation and indirect wholly owned subsidiary of WSP Global Inc. and the Company (the “Merger Agreement Proposal”); (ii) a proposal to approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to E&E’s named executive officers that is based on or otherwise relates to the merger contemplated by the Merger Agreement; and (iii) a proposal to approve an adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the Special Meeting to approve the Merger Agreement Proposal.

(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/A on December 124, ~~2018~~2019 to ~~announce:~~amend ~~(i) development and rollout of~~ an ~~organizational restructuring plan~~immaterial, ~~which~~typographical ~~includes~~error aincluded ~~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~~Original 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~~This ~~Company~~correction was ~~given~~immaterial 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~~impact ~~its Quarterly Report on Form 10-Q for~~ the ~~period~~outcome ended January 26, 2019. (k) The Company filed a Current Report on Form 8-K on April 1, 2019 to announce that 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. (l) The Company filed a Current Report on Form 8-K on April 16, 2019 to announce that : (i) Fred J. McKosky, Technical Operations Director, declared his intention to retire shortly after the end of the ~~Company’s~~vote ~~fiscal year ending July 31, 2019; and (ii) Kurt Zmich was promoted to Senior Vice President of Operations effective April 11, 2019, replacing Mr. McKosky~~ as ~~the~~previously ~~Company’s~~disclosed ~~principal~~in ~~operating officer. (m) The Company filed a Current Report on Form 8-K on May 14, 2019 to announce that: (i)~~ the ~~Company~~Original ~~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 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.

Page 37 of 38

(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.
		ECOLOGY AND ENVIRONMENT INC.
Date: June 17, 2019	By:	/s/ Peter F. Sorci
Date:	December 17, 2019	/s/ Peter F. Sorci
		Peter F. Sorci
		Acting Chief Financial Officer

Page 3827 of 3827

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