Edgar Filing: ECOLOGY & ENVIRONMENT INC

form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended May 1, 2010

o	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)

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 þ No o

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	o		Accelerated filer	o
Non-accelerated filer (Do not check if a smaller reporting company)	o		Smaller reporting company	þ

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

At June 1, 2010, 2,541,737 shares of Registrant's Class A Common Stock (par value $.01) and 1,651,273 shares of Class B Common Stock (par value $.01) were outstanding.

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements.

Ecology and Environment, Inc
Consolidated Balance Sheets
Unaudited


	May 1,			July 31,
Assets	2010			2009

Current assets:
Cash and cash equivalents	$	17,143,809		$	16,571,186
Investment securities, available for sale		1,284,403			1,212,405
Contract receivables, net		37,990,555			41,693,034
Deferred income taxes		4,565,237			4,137,516
Income tax receivable		-			650,090
Other current assets		2,239,885			2,372,919

Total current assets		63,223,889			66,637,150

Property, building and equipment, net of accumulated
depreciation, $20,593,390 and $19,302,306		8,350,597			8,258,441
Deferred income taxes		1,165,025			1,160,444
Other assets		1,652,571			1,599,204

Total assets	$	74,392,082		$	77,655,239


Liabilities and Shareholders' Equity

Current liabilities:
Accounts payable	$	7,792,828		$	13,866,425
Accrued payroll costs		6,919,214			7,216,316
Income taxes payable		484,038			-
Deferred revenue		175,456			103,509
Current portion of long-term debt and capital lease obligations		1,283,505			411,331
Other accrued liabilities		8,992,341			9,049,995

Total current liabilities		25,647,382			30,647,576

Income taxes payable		351,021			278,782
Long-term debt and capital lease obligations		740,456			403,941
Commitments and contingencies (see note #12)		-			-

Shareholders' equity:
Preferred stock, par value $.01 per share;
authorized - 2,000,000 shares; no shares
issued		-			-
Class A common stock, par value $.01 per
share; authorized - 6,000,000 shares;
issued - 2,677,651 shares		26,776			26,776
Class B common stock, par value $.01 per
share; authorized - 10,000,000 shares;
issued - 1,716,074 shares		17,162			17,162
Capital in excess of par value		19,924,692			20,093,952
Retained earnings		24,805,661			23,290,768
Accumulated other comprehensive income		782,786			441,965
Treasury stock - Class A common, 135,914 and 242,290
shares; Class B common, 64,801 shares, at cost		(1,849,986	)		(2,819,138	)

Total Ecology and Environment, Inc. shareholders' equity		43,707,091			41,051,485
Noncontrolling interests		3,946,132			5,273,455

Total shareholders' equity		47,653,223			46,324,940

Total liabilities and shareholders' equity	$	74,392,082		$	77,655,239

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

Ecology and Environment, Inc.
Consolidated Statements of Income


	Three months ended						Nine months ended
	May 1,			May 2,			May 1,			May 2,
	2010			2009			2010			2009

Revenue	$	33,349,736		$	38,016,479		$	103,886,886		$	105,776,879

Cost of professional services and other direct operating expenses		11,460,818			9,530,336			35,076,531			36,896,954
Subcontract costs		6,478,668			14,740,360			22,887,420			26,705,833
Administrative and indirect operating expenses		9,537,563			8,342,642			28,022,714			24,857,553
Marketing and related costs		3,620,120			3,427,081			10,917,214			9,258,033
Depreciation		405,959			392,641			1,242,000			1,156,152

Income from operations		1,846,608			1,583,419			5,741,007			6,902,354
Interest expense		(62,236	)		203,131			(173,123	)		(42,702	)
Interest income		24,395			32,042			87,764			166,739
Other expense		(1,523	)		(75,231	)		(91,955	)		(104,354	)
Gain on sale of property and equipment		-			-			809,200			-
Net foreign exchange gain (loss)		(26,316	)		40,751			(66,827	)		(53,424	)

Income before income tax provision (benefit)		1,780,928			1,784,112			6,306,066			6,868,613
Income tax provision (benefit)		663,112			(401,600	)		2,185,831			1,576,761

Net income	$	1,117,816		$	2,185,712		$	4,120,235		$	5,291,852

Net income attributable to noncontrolling interests		(370,473	)		(464,138	)		(1,738,187	)		(1,130,090	)

Net income attributable to Ecology and Environment, Inc.	$	747,343		$	1,721,574		$	2,382,048		$	4,161,762

Net income per common share: basic and diluted	$	0.18		$	0.42		$	0.57		$	1.01

Weighted average common shares outstanding: basic and diluted		4,193,010			4,088,563			4,150,193			4,125,505

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

Ecology and Environment, Inc
Consolidated Statements of Cash Flows
Unaudited

	Nine months ended
	May 1,			May 2,
	2010			2009

Cash flows from operating activities:
Net income	$	4,120,235		$	5,291,852
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation		1,242,000			1,156,152
Provision (benefit) for deferred income taxes		(353,250	)		1,320,980
Share-based compensation expense		350,475			352,536
Tax impact of share based compensation		102,737			-
Gain on disposition of property and equipment		(809,200	)		-
Provision for contract adjustments		583,835			688,024
(Increase) decrease in:
- contracts receivable		3,703,257			(1,713,829	)
- other current assets		136,190			(1,075,759	)
- income tax receivable		650,090			(469,583	)
- other non-current assets		(50,461	)		(27,045	)
Increase (decrease) in:
- accounts payable		(6,212,965	)		1,172,622
- accrued payroll costs		(370,673	)		486,417
- income taxes payable		536,477			179,628
- deferred revenue		71,947			77,792
- other accrued liabilities		(270,174	)		(2,350,776	)

Net cash provided by operating activities		3,430,520			5,089,011

Cash flows provided by (used in) investing activities:
Acquistion of noncontrolling interest of subsidiary		(1,000,000	)		(27,879	)
Purchase of Lowham Engineering LLC		(200,000	)		-
Purchase of property, building and equipment		(1,416,272	)		(1,225,980	)
Proceeds from sale of property and equipment		959,200			-
Purchase of investment securities		(46,941	)		(13,817	)

Cash used in investing activities		(1,704,013	)		(1,267,676	)

Cash flows provided by (used in) financing activities:
Dividends paid		(867,155	)		(777,326	)
Proceeds from debt		480,936			517,116
Repayment of debt and capital lease obligations		(352,436	)		(1,865,894	)
Distributions to noncontrolling interests		(755,338	)		(615,388	)
Proceeds from sale of subsidiary shares to noncontrolling interests		143,112			69,108
Purchase of treasury stock		-			(1,832,123	)

Net cash used in financing activities		(1,350,881	)		(4,504,507	)

Effect of exchange rate changes on cash and cash equivalents		196,997			21,340

Net increase (decrease) in cash and cash equivalents		572,623			(661,832	)
Cash and cash equivalents at beginning of period		16,571,186			14,178,094

Cash and cash equivalents at end of period	$	17,143,809		$	13,516,262

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

Ecology and Environment, Inc
Consolidated Statements of Changes in Shareholders' Equity
Unaudited

								Accumulated
		Common Stock				Capital in		Other
		Class A		Class B		Excess of	Retained	Comprehensive	Treasury Stock		Noncontolling	Comprehensive
		Shares	Amount	Shares	Amount	Par Value	earnings	Income (loss)	Shares	Amount	Interest	Income

Balance at July 31, 2008		2,661,498	$ 26,615	1,732,227	$ 17,323	$ 20,014,257	$ 19,664,147	$ 834,667	130,141	$ (1,302,663)	$ 4,169,247	$ 7,952,354

	Net income	-	-	-	-	-	5,221,274	-	-	-	1,668,066	6,889,340
	Foreign currency translation adjustment	-	-	-	-	-	-	(402,403)	-	-	20,590	(381,813)
	Cash dividends paid ($.39 per share)	-	-	-	-	-	(1,594,653)	-	-	-	-	-
	Unrealized investment gain, net	-	-	-	-	-	-	9,701	-	-	-	9,701
	Conversion of common stock - B to A	16,153	161	(16,153)	(161)	-	-	-	-	-	-	-
	Repurchase of Class A common stock	-	-	-	-	-	-	-	207,941	(1,832,123)	-	-
	Issuance of stock under stock award plan	-	-	-	-	(376,176)	-	-	(37,580)	376,176	-	-
	Share-based compensation expense	-	-	-	-	446,412	-	-	-	-	-	-
	Sale of subsidiary shares to noncontrolling interests	-	-	-	-	-	-	-	-	-	41,229	-
	Distributions to noncontrolling interests	-	-	-	-	-	-	-	-	-	(625,677)	-
	Other	-	-	-	-	9,459	-	-	6,589	(60,528)	-	-

Balance at July 31, 2009		2,677,651	$ 26,776	1,716,074	$ 17,162	$ 20,093,952	$ 23,290,768	$ 441,965	307,091	$ (2,819,138)	$ 5,273,455	$ 6,517,228

	Net income	-	-	-	-	-	2,382,048	-	-	-	1,738,187	4,120,235
	Foreign currency translation adjustment	-	-	-	-	-	-	398,499	-	-	22,810	421,309
	Cash dividends paid ($.21 per share)	-	-	-	-	-	(867,155)	-	-	-	-	-
	Unrealized investment gain, net	-	-	-	-	-	-	15,034	-	-	-	15,034
	Issuance of stock under stock award plan	-	-	-	-	(372,172)	-	-	(42,675)	372,172	-	-
	Share-based compensation expense	-	-	-	-	350,475	-	-	-	-	-	-
	Tax impact of share based compensation	-	-	-	-	102,737	-	-	-	-	-	-
	Sale of subsidiary shares to noncontrolling interests	-	-	-	-	-	-	-	-	-	143,112	-
	Distributions to noncontrolling interests	-	-	-	-	-	-	-	-	-	(755,338)	-
	Purchase of additional noncontrolling interests	-	-	-	-	(254,180)	-	(72,712)	(66,667)	616,670	(2,476,094)	(72,712)
	Other	-	-	-	-	3,880	-	-	2,966	(19,690)	-	-

Balance at May 1, 2010		2,677,651	$ 26,776	1,716,074	$ 17,162	$ 19,924,692	$ 24,805,661	$ 782,786	200,715	$ (1,849,986)	$ 3,946,132	$ 4,483,866

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

Ecology and Environment, Inc.

Notes to Consolidated Financial Statements

Summary of Operations and Basis of Presentation

The consolidated financial statements included herein have been prepared by Ecology and Environment, Inc., ("E&E" or the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. The Company follows the same accounting policies in preparation of interim reports. Although E&E believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such rules and regulations. Therefore, these financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in E&E's 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission. The consolidated results of operations for the nine months ended May 1, 2010 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, 2010.

1.	Summary of Significant Accounting Policies

a. Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. Also reflected in the financial statements is the 50% ownership in the Chinese operating joint venture, The Tianjin Green Engineering Company. This joint venture is accounted for under the equity method. All significant intercompany transactions and balances have been eliminated.

b. Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions as of the date of the financial statements, which affect the reported values of assets and liabilities and revenues and expenses and disclosures of contingent assets and liabilities. Actual results may differ from those estimates.

c. Reclassifications

Certain prior year amounts were reclassified to conform to the fiscal year 2010 consolidated financial statement presentation.

d. Codification

In June 2009, the FASB voted to approve the FASB Accounting Standards Codification (Codification) as the single source of authoritative nongovernmental U.S. generally accepted accounting principles. The Company adopted the Codification requirements beginning with its October 31, 2009 financial statements. The FASB Codification does not change U.S. generally accepted accounting principles, but combines all authoritative standards such as those issued by the FASB, the American Institute of Certified Public Accountants and the Emerging Issues Task Force into a comprehensive, topically organized online database.

e. Revenue Recognition

Substantially all of the Company's revenue is derived from environmental consulting work. The consulting revenue is principally derived from the sale of labor hours. The consulting work is performed under a mix of fixed price, cost-type, and time and material contracts. Contracts are required from all customers. Revenue is recognized as follows:

Contract Type	Work Type	Revenue Recognition Policy

Time and Materials	Consulting	As incurred at contract rates.

Fixed Price	Consulting	Percentage of completion, approximating the ratio of either total costs or Level of Effort (LOE) hours incurred to date to total estimated costs or LOE hours

Cost-Type	Consulting	Costs as incurred. Fixed fee portion is recognized using percentage of completion determined by the percentage of LOE hours incurred to total LOE hours in the respective contracts.

Substantially all of the Company's cost-type work is with federal governmental agencies and, as such, is subject to audits after contract completion. Under these cost-type contracts, provisions for adjustments to accrued revenue are recognized on an quarterly basis and based on past audit settlement history. Government audits have been completed and final rates have been negotiated through fiscal year 2001. The Company records an allowance for contract adjustments which principally represents a reserve for contract adjustments for the fiscal years 1996-2010.

We reduce our accounts receivable and costs and accrued earnings in excess of billings on contracts in process by establishing an allowance for amounts that, in the future, may become uncollectible or unrealizable, respectively. We determine our estimated allowance for uncollectible amounts based on management’s judgments regarding our operating performance related to the adequacy of the services performed, the status of change orders and claims, our experience settling change orders and claims and the financial condition of our clients, which may be dependent on the type of client and current economic conditions that the client may be subject to.

Change orders can occur when changes in scope are made after project work has begun, and can be initiated by either the Company or its clients. Claims are amounts in excess of the agreed contract price which the Company seeks to recover from a client for customer delays and / or errors or unapproved change orders that are in dispute. Costs related to change orders and claims are recognized as incurred. Revenues and profit are recognized on change orders when it is probable that the change order will be approved and the amount can be reasonably estimated. Revenue on claims is not recognized until the claim is approved by the customer.

All bid and proposal and other pre-contract costs are expensed as incurred. Out of pocket expenses such as travel, meals, field supplies, and other costs billed direct to contracts are included in both revenues and cost of professional services and other direct operating expenses.

f. Investment securities

Investment securities have been classified as available for sale and are stated at fair value. Unrealized gains or losses related to investment securities available for sale are reflected in accumulated other comprehensive income, net of applicable income taxes in the consolidated balance sheets and statements of changes in shareholders' equity. The cost of securities sold is based on the specific identification method. The Company had gross unrealized gains of approximately $28,000 and $13,000 at May 1, 2010 and July 31, 2009, respectively.

g. Fair value of financial instruments

The Company records and discloses certain financial assets and liabilities at their fair value. The fair value of an asset is the price at which the asset could be sold in an orderly transaction between unrelated, knowledgeable and willing parties able to engage in the transaction. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor in a transaction between such parties, not the amount that would be paid to settle the liability with the creditor. 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.

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 following table presents the level within the fair value hierarchy at which the Company’s financial assets are measured on a recurring basis.

Financial assets as of May 1, 2010:

	Level 1		Level 2		Level 3		Total
Assets
Money market mutual funds	$	4,390,292	$	---	$	---	$	4,390,292
Investment securities available for sale		50,895		1,233,508		---		1,284,403
Total	$	4,441,187	$	1,233,508	$	---	$	5,674,695

Financial assets as of July 31, 2009:

	Level 1		Level 2		Level 3		Total
Assets
Money market mutual funds	$	6,279,470	$	---	$	---	$	6,279,470
Investment securities available for sale		50,895		1,161,510		---		1,212,405
Total	$	6,330,365	$	1,161,510	$	---	$	7,491,875

The carrying amount of cash and cash equivalents, contracts receivable, notes receivable and accounts payable at May 1, 2010 and July 31, 2009 approximate fair value. Long-term debt consists of bank loans and capitalized equipment leases. Based on the Company's assessment of the current financial market and corresponding risks associated with the debt, management believes that the carrying amount of long-term debt at May 1, 2010 and July 31, 2009 approximates fair value. There were no financial instruments classified as level 3.

h. Translation of Foreign Currencies

The financial statements of foreign subsidiaries where the local currency is the functional currency are translated into U.S. dollars using exchange rates in effect at period end for assets and liabilities and average exchange rates during each reporting period for results of operations. Translation adjustments are recorded in accumulated other comprehensive income.

The financial statements of foreign subsidiaries located in highly inflationary economies are remeasured as if the functional currency were the U.S. dollar. The remeasurement of local currencies into U.S. dollars creates transaction adjustments which are included in net income. There were no highly inflationary economy transaction adjustments for fiscal years 2009 and 2010.

i. Income Taxes

The Company follows the asset and liabilities approach to account for income taxes. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Although realization is not assured, management believes it is more likely than not that the recorded net deferred tax assets will be realized. Since in some cases management has utilized estimates, the amount of the net deferred tax asset considered realizable could change in the near term. No provision has been made for United States income taxes applicable to undistributed earnings of foreign subsidiaries as it is the intention of the Company to indefinitely reinvest those earnings in the operations of those entities.

Income tax expense includes U.S. and international income taxes, determined using an estimate of the Company’s annual effective tax rate. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences and net operating loss carryforwards.

The Company has significant deferred tax assets, resulting principally from contract reserves and fixed assets. The Company periodically evaluates the likelihood of realization of deferred tax assets, and has determined that no valuation allowance is necessary.

Additionally, Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic Income Taxes, prescribes a recognition threshold and measurement principles for financial statement disclosure of tax positions taken or expected to be taken on a tax return. This topic also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.

A tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained. Tax positions that meet the more likely than not threshold should be measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a tax position, is a matter of judgment based on the individual facts and circumstances of that position evaluated in light of all available evidence. Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in administrative and indirect operating expenses.

j. Earnings Per Share (EPS)

Basic and diluted EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. The Company allocates undistributed earnings between the classes 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 shares are equal amounts. See Note 10 to Consolidated Financial Statements for additional information.

k. Impairment of Long-Lived Assets

The Company assesses recoverability of the carrying value of long-lived assets by estimating the future net cash flows (undiscounted) expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value. The Company identified no events or changes in circumstances that necessitated an evaluation for an impairment of long lived assets during the nine months ended May 1, 2010 or May 2, 2009.

l. Goodwill

The total goodwill of approximately $1.1 million is subject to an annual assessment for impairment. The Company’s most recent annual impairment assessment for goodwill was completed during the fourth quarter of fiscal year 2009. The results of this assessment showed that the fair values of the reporting units to which goodwill is assigned was in excess of the book values of the respective reporting units, resulting in no goodwill impairment. Goodwill is assessed for impairment between annual assessments whenever events or circumstances make it more likely than not that an impairment may have occurred. The Company identified no events or changes in circumstances that necessitated an evaluation for an impairment of goodwill during the nine months ended May 1, 2010 or May 2, 2009.

2.	Contract Receivables, net

	May 1, 2010			July 31, 2009

United States government -
Billed	$	2,405,464		$	2,546,741
Unbilled		2,999,542			3,784,894
		5,405,006			6,331,635

Industrial customers and state and municipal governments -
Billed		18,923,686			21,051,958
Unbilled		16,766,036			16,829,779
		35,689,722			37,881,737

Allowance for doubtful accounts and contract adjustments		(3,104,173	)		(2,520,338	)

	$	37,990,555		$	41,693,034

United States government receivables arise from long-term U.S. government prime contracts and subcontracts. Unbilled receivables result from revenues which have been earned, but are not billed as of period-end. The above unbilled balances are comprised of incurred costs plus fees not yet processed and billed; and differences between year-to-date provisional billings and year-to-date actual contract costs incurred. Management anticipates that the May 1, 2010 unbilled receivables will be substantially billed and collected within one year. Within the above billed balances are contractual retainages in the amount of approximately $472,000 at May 1, 2010 and $217,000 at July 31, 2009. Management anticipates that the May 1, 2010 retainage balance will be substantially collected within one year.

3.	Line of Credit

The Company maintains an unsecured line of credit available for working capital and letters of credit of $20.2 million at interest rates ranging from 3% to 5% at May 1, 2010. Other lines are available solely for letters of credit in the amount of $18.5 million. The Company guarantees the line of credit of its majority owned subsidiary, Walsh Environmental (Walsh). The banks have reaffirmed the Company’s lines of credit within the past twelve months. At May 1, 2010 and July 31, 2009 the Company had letters of credit outstanding totaling approximately $3.0 million and $.6 million, respectively. After letters of credit and loans, there was $35.7 million of availability under the lines of credit at May 1, 2010.

4.	Long-Term Debt and Capital Lease Obligations

Debt inclusive of capital lease obligations at May 1, 2010 and July 31, 2009 consists of the following:

	May 1, 2010			July 31, 2009

Various bank loans and advances at interest rates ranging from 5% to 14%	$	1,835,100		$	531,031
Capital lease obligations at varying interest rates averaging 11%		188,861			284,241
		2,023,961			815,272

Current portion of debt and capital lease obligations		(1,283,505	)		(411,331	)

Long-term debt and capital lease obligations	$	740,456		$	403,941

The aggregate annual maturities of long-term debt and capital lease obligations at May 1, 2010 are as follows:

	Amount

May 2010 – April 2011	$	1,283,505
May 2011 – April 2012		600,691
May 2012 – April 2013		65,545
May 2013 – April 2014		56,195
May 2014 – April 2015		18,025
Thereafter		---
	$	2,023,961

5.	Other Accrued Liabilities

	May 1, 2010		July 31, 2009

Allowance for contract adjustments	$	3,426,636	$	3,417,828
Billings in excess of revenue		4,049,702		4,101,761
Other		1,516,003		1,530,406

	$	8,992,341	$	9,049,995

Included in other accrued liabilities is an allowance for contract adjustments relating to potential cost disallowances on amounts billed and collected in current and prior years' projects of approximately $3.4 million at May 1, 2010 and July 31, 2009. The allowance for contract adjustments is recorded for contract disputes and government audits when the amounts are estimatable.

6.	Income Taxes

The estimated effective tax rate for fiscal year 2010 is 34.7%, as compared to the 27.0% reported for fiscal year 2009. Excluding the favorable settlement in Kuwait, the estimated effective tax rate for fiscal year 2009 was 36.1%.

7.	Stock Award Plan

The Company adopted a 2003 Stock Award Plan (2003 Plan) which was approved by the shareholders at the Annual Meeting held in January of 2004 and a 2007 Stock Award Plan (2007 Plan) which was approved by the shareholders at the Annual Meeting held in January of 2008 (the 2003 Plan and the 2007 Plan is collectively referred to as the Award Plan). The 2003 Plan was approved retroactive to October 16, 2003 and terminated on October 15, 2008 and the 2007 Plan was approved retroactive to October 18, 2007 and will terminate October 17, 2012. Under the Award Plan, key employees (including officers) of the Company or any of its present or future subsidiaries may be designated to receive awards of Class A Common stock of the Company as a bonus for services rendered to the Company or its subsidiaries, without payment, and based upon the fair market value of the Company stock at the time of the award. The Award Plan authorizes the Company's board of directors to determine for what period of time and under what circumstances awards can be forfeited.

The Company awarded 42,675 shares valued at approximately $648,000 in October 2009 pursuant to the Award Plan. These awards issued have a three year vesting period. The "pool" of excess tax benefits accumulated in Capital in Excess of Par Value was $225,000 and $122,000 at May 1, 2010 and July 31, 2009, respectively. Total gross compensation expense is recognized over the vesting period. Unrecognized compensation expense was approximately $630,000 and $370,000 at May 1, 2010 and July 31, 2009, respectively.

8.	Shareholders' Equity

Class A and Class B common stock

The relative rights, preferences and limitations of the Company's Class A and Class B common stock can be summarized as follows: Holders of Class A shares are entitled to elect 25% of the Board of Directors so long as the number of outstanding Class A shares is at least 10% of the combined total number of outstanding Class A and Class B common shares. Holders of Class A common shares have one-tenth the voting power of Class B common shares with respect to most other matters.

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.

Noncontrolling Interest

On August 1, 2009, the Company adopted authoritative accounting guidance that requires the ownership interests in subsidiaries held by parties other than the parent, and income attributable to those parties, be clearly identified and distinguished in the parent’s consolidated financial statements. Consequently, the Company’s noncontrolling interest is now disclosed as a separate component of the Company’s consolidated equity on the balance sheets, rather than a “mezzanine” item between liabilities and equity. Further, earnings and other comprehensive income are now separately attributed to both the controlling and noncontrolling interests. Earnings per share continues to be calculated based on net income attributable to the Company’s controlling interest. The impact on the Company’s financial position and results of operations from the adoption of this authoritative accounting guidance is presented in the tables below:

	Nine months ended May 2, 2009 Consolidated Statements of Operations
	As Reported			As Adjusted

Minority interest	$	(1,130,090	)	$	---
Net income		4,161,762			5,291,852
Net income attributable to noncontrolling interests		---			1,130,090
Net income attributable to Ecology and Environment, Inc.		---			4,161,762

On January 28, 2010 Ecology and Environment purchased an additional equity of 18.7% or approximately $2,360,000 of its Walsh Environmental Scientists and Engineers, LLC (Walsh) subsidiary from noncontrolling shareholders for $3,000,000. One third of the purchase price was paid in cash, one third was paid with E&E stock, and the remainder was taken as loans carrying an interest rate of 5% to be repaid over a two year period. The purchase price that was paid to the noncontrolling shareholders was at a premium over the book value of the stock. This has created an entry to reduce the additional paid in capital account of approximately $638,000 that was recorded in the second quarter of fiscal year 2010. On March 1st, Walsh purchased an 80% ownership interest in Lowham - Walsh Environmental Services LLC. This transaction was an asset purchase of the former Lowham Engineering LLC in Wyoming. Walsh contributed cash and the newly formed entity issued a five year promissory note bearing a six percent annualized interest rate for the assets of the former company. All other transactions with noncontrolling shareholders for the nine months ended May 1, 2010 were made at a value approximating book value.

Effects of changes in E&E's ownership interest in its subsidiaries on E&E’s equity:

	Nine months ended May 1, 2010			Fiscal year ended July 31, 2009
	Nine months ended May 1, 2010			Fiscal year ended July 31, 2009
Transfers to noncontrolling interest:
Sale of 310 Walsh common shares	$	---		$	64,920
Sale of 20 Walsh common shares		---			4,188
Sale of 160 Walsh common shares		40,850			---
Sale of 196 Walsh common shares		50,040			---
Sale of 200 Lowham – Walsh common shares		52,222			---
Total transfers to noncontrolling interest		143,112			69,108

Transfers from noncontrolling interest:
Purchase of 112 Walsh common shares		---			(27,332	)
Purchase of 2 Walsh Peru common shares		---			(547	)
Purchase of 182 Walsh common shares		(59,486	)		---
Purchase of 7,343 Walsh common shares		(2,289,778	)		---
Purchase of 11,000 Walsh Peru common shares		(126,830	)		---
Total transfers from noncontrolling interest		(2,476,094	)		(27,879	)

Transfers to (from) noncontrolling interest	$	(2,332,982	)	$	41,229

9.	Shareholders' Equity - Restrictive Agreement

Messrs. Gerhard J. Neumaier, Frank B. Silvestro, Ronald L. Frank and Gerald A. Strobel entered into a Stockholders' Agreement in 1970 which governs the sale of certain shares of common stock owned by them, the former spouse of one of the individuals and some of their children. The agreement provides that prior to accepting a bona fide offer to purchase the certain covered part of their shares, each party must first allow the other members to the agreement 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.

10. Earnings Per Share

The computation of basic earnings per share to diluted earnings per share follows:

	Three months ended				Nine months ended
	May 1, 2010		May 2, 2009		May 1, 2010		May 2, 2009

Total income available to common stockholders	$	747,343	$	1,721,574	$	2,382,048	$	4,161,762
Dividend paid		---		---		867,155		777,326
Undistributed earnings		747,343		1,721,574		1,514,893		3,384,436

Weighted-average common shares outstanding (basic)		4,193,879		4,088,563		4,150,193		4,125,505

Distributed earnings per share	$	---	$	---	$	.21	$	.19
Undistributed earnings per share		.18		.42		.36		.82
Total earnings per share		.18		.42		.57		1.01

After consideration of all the rights and privileges of the Class A and Class B stockholders discussed in Note 8, in particular the right of the holders of the Class B common stock to elect no less than 75% of the Board of Directors making it highly unlikely that the Company will pay a dividend on Class A common stock in excess of Class B common stock, the Company allocates undistributed earnings between the classes 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 shares are equal amounts.

Effective August 1, 2009, the Company has determined that its unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. These securities shall be included in the computation of earnings per share (EPS) pursuant to the two-class method. The resulting impact was to include unvested restricted shares in the basic weighted average shares outstanding calculation. The impact for the three and nine month periods ended May 1, 2010 was approximately 115,000 and 107,000, respectively. The impact for the three and nine month periods ended May 2, 2009 was approximately 139,000 and 131,000, respectively.

11.	Segment Reporting

Segment information for nine months ended May 1, 2010 are as follows:

Geographic information:

	Revenue (1)		Long-Lived Assets

United States	$	73,773,886	$	25,787,987
Foreign countries		30,113,000		3,156,000

(1) Revenue is attributed to countries based on the location of the customer.

Segment information for nine months ended May 2, 2009 are as follows:

Geographic information:

	Revenue (1)		Long-Lived Assets

United States	$	83,895,879	$	23,669,377
Foreign countries		21,881,000		3,061,000

(1) Revenue is attributed to countries based on the location of the customer.

During the first nine months of fiscal years 2010 and 2009, the percentages of total revenues derived from contracts exclusively with federal government agencies were 20% and 24%, respectively.

12.	Commitments and Contingencies

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 of the Company believes will have a material adverse effect on the Company’s consolidated results of operations, financial condition, 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.

Certain contracts contain termination provisions under which the customer may, without penalty, terminate the contracts upon written notice to the Company. In the event of termination, the Company would be paid only termination costs in accordance with the particular contract. Generally, termination costs include unpaid costs incurred to date, earned fees and any additional costs directly allocable to the termination.

13.	Recent Accounting Pronouncements

In June 2009, the FASB issued guidance on the consolidation of variable interest entities, which required revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The Company is required to adopt these provisions on August 1, 2010. The Company is currently evaluating the effect that the adoption will have on its consolidated financial statements.

In January 2010, the Financial Accounting Standards Board updated the authoritative guidance for fair value measurements with new disclosure requirements. These requirements include disclosures on the transfers of assets and liabilities between Level 1 (measurements based on quoted prices in active markets for identical assets or liabilities) and Level 2 (measurements based on significant other observable inputs) of the fair value measurement hierarchy, and a roll-forward of activities on purchases, sales, issuance, and settlements of Level 3 (measurements based on significant unobservable inputs) assets and liabilities. The Company does not believe the adoption of this guidance will have a material impact on the Company’s financial position, results of operations or cash flows.

14.	Supplemental Cash Flow Information Disclosure

For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents. Cash paid for interest amounted to approximately $160,000 and $115,000 for the nine month period ended May 1, 2010 and May 2, 2009, respectively. Cash paid for income taxes amounted to approximately $287,000 and $1.5 million for the nine month period ended May 1, 2010 and May 2, 2009, respectively. On March 1st, 2010, as part of the formation of Lowham - Walsh Environmental Services LLC., the entity issued a five year promissory note for approximately $80,000 bearing a six percent annualized interest rate. During the second quarter of fiscal year 2010, Ecology and Environment purchased an additional 18.7% of its Walsh LLC subsidiary from its minority shareholders for $3.0 million. One third of the purchase price was paid in cash, one third was paid with E&E stock, and the remainder was taken as loans to be repaid over a two year period. During the first quarter of fiscal year 2009, Walsh Peru financed vehicles and computer equipment through capital leases of approximately $154,000.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

Operating activities provided $3.4 million of cash during the first nine months of fiscal year 2010. This was mainly attributable to the reported $4.1 million in net income, a $3.7 million decrease in contracts receivables, and a $1.2 million change in income tax accruals. Contracts receivable decreased $3.7 million during the first nine months of fiscal year 2010 mainly attributable to decreased work levels at Ecology and Environment, Inc. (the parent company) and the payment of receivables that were outstanding at the end of the fourth quarter of fiscal year 2009. Offsetting these was a $6.2 million decrease in accounts payable and a $.4 million decrease in accrued payroll costs. Accounts payable decreased $6.2 million during the first nine months of fiscal year 2010 primarily due to the decreased work levels at the parent company and the payment of payables that were outstanding from the increased work levels at Walsh Environmental and the parent company during the fourth quarter of fiscal year 2009.

Investing activities consumed $1.7 million of cash during the first nine months of fiscal year 2010. This was mainly attributable to the purchase of additional noncontrolling interest in Walsh Environmental (Walsh) by Ecology and Environment, Inc. and the purchases of property, plant and equipment of $1.4 million during the first nine months of fiscal year 2010. During the second quarter of fiscal year 2010, Ecology and Environment purchased additional noncontrolling interest in Walsh for $3.0 million. One third of the purchase price was paid in cash, one third was paid with E&E stock, and the remainder was taken as loans to be repaid over a two year period. Offsetting this was the sale of 16.5 acres of land by the Company at its Walden Avenue facility in Lancaster, New York during the first quarter of fiscal year 2010, for the sum of approximately $959,000.

Financing activities consumed $1.4 million of cash during the first nine months of fiscal year 2010. In January 2010, the Company paid dividends in the amount of $.9 million or $.21 per share. Distributions to noncontrolling interests during the first nine months of fiscal year 2010 were approximately $.8 million.

The Company maintains an unsecured line of credit available for working capital and letters of credit of $20.2 million at interest rates ranging from 3% to 5% at May 1, 2010. Other lines are available solely for letters of credit in the amount of $18.5 million. The Company guarantees the line of credit of its majority owned subsidiary, Walsh. The banks have reaffirmed the Company’s lines of credit within the past twelve months. At May 1, 2010 and July 31, 2009 the Company had letters of credit outstanding totaling approximately $3.0 million and $.6 million, respectively. After letters of credit and loans, there was $35.7 million of availability under the lines of credit at May 1, 2010. The Company believes that cash flows from operations and borrowings against the line of credit will be sufficient to cover all working capital requirements for at least the next twelve months and the foreseeable future.

Results of Operations

Revenue

Fiscal Year 2010 vs 2009

Revenues for the third quarter of fiscal year 2010 were $33.3 million, a decrease of $4.7 million from the $38.0 million reported for the third quarter of fiscal year 2009. The decrease in revenue was mainly attributable to decreased work levels at the Company’s subsidiary Walsh. Walsh reported revenues of $8.9 million for the third quarter of 2010, a decrease of $5.9 million or 40% from the $14.8 million reported in the third quarter of fiscal year 2009 mainly attributable to the completion of work associated with a redevelopment project. Offsetting these was a $.9 million increase in revenue reported at the Company’s subsidiary E&E do Brazil. E&E do Brasil reported revenue of $2.4 million during the third quarter of fiscal year 2010, an increase of $.8 million or 50% from the $1.6 million reported in the third quarter of fiscal year 2009. The increase in revenue at E&E do Brasil was associated with increased work on contracts in the energy market.

Revenues for the first nine months of fiscal year 2010 were $103.9 million, a decrease of $1.9 million from the $105.8 million reported for the first nine months of fiscal year 2009. The decrease in revenue was mainly attributable to decreased work levels at the parent company and Walsh. Revenues of the parent company were $58.9 million for the first nine months of fiscal year 2010, a decreased of $5.3 million from the $64.2 million reported in the first nine months of the prior year. The decrease in revenue was attributable to project delays throughout all sectors of the parent company. Revenues from Walsh were $31.9 million for the first nine months of fiscal year 2010, a decrease of $.5 million from the $32.4 million reported in the first nine months of fiscal year 2009. The decrease in Walsh revenues was mainly attributable to the completion of work associated with a redevelopment project. Revenues from E&E do Brasil were $7.8 million for the first nine months of fiscal year 2010, an increase of $2.5 million from the $5.3 million reported in the first nine months of fiscal year 2009. The increase in E&E do Brasil revenues was mainly attributable to increased work in the energy market.

Income Before Income Taxes

Fiscal Year 2010 vs 2009

The Company’s income before income taxes was $1.8 million for the third quarter of fiscal year 2010 and the third quarter of 2009. The third quarter of fiscal year 2009 includes a net gain of $.24 per share attributable to the favorable tax settlement in Kuwait, net of an additional charge to fully reserve the balance of accounts receivable from work in the Middle East. Excluding this $.24 per share gain, the third quarter earnings for fiscal year 2009 were $.18 per share. Revenue less subcontract costs was $26.9 million, an increase of $3.6 million from the $23.3 million reported in the third quarter of the prior year due to a large contract with significant subcontract costs ending during the period. Income from operations for the third quarter of fiscal year 2010 was $1.8 million, up 13% from the $1.6 million reported in the prior year. Indirect costs increased $1.4 million during the third quarter of fiscal year 2010 attributable to increased staffing levels and business development and proposal costs worldwide in anticipation of a significant increase in work in the fourth quarter or fiscal year 2010. The parent company reported indirect costs of $8.5 million for the third quarter of 2010, an increase of $.4 million from the $8.1 million reported in the third quarter of fiscal year 2009. Walsh reported indirect costs of $3.2 million for the third quarter of fiscal year 2010, an increase of $.2 million from the $3.0 million reported in the prior year. E&E do Brasil reported indirect costs of $1.0 million for the third quarter of fiscal year 2010, an increase of $.3 million from the $.7 million reported in the prior year. Indirect costs during the third quarter of fiscal year 2009 were impacted by a $.5 million reduction associated with the favorable tax settlement in Kuwait.

The Company’s income before income taxes was $6.3 million for the first nine months of fiscal year 2010, a decrease of $.6 million from the $6.9 million reported in the first nine month of the prior year. Indirect costs increased $4.8 million during the first nine months of fiscal year 2010. The increase was attributable to increased staffing levels and business development and proposal costs worldwide in anticipation of a significant increase in work in the fourth quarter or fiscal year 2010. The parent company reported indirect costs of $25.3 million for the first nine months of 2010, an increase of $2.3 million from the $23.0 million reported in the first nine months of fiscal year 2009. Walsh reported indirect costs of $9.2 million for the first nine months of fiscal year 2010, an increase of $1.1 million from the $8.1 million reported in the first nine months of the prior year. E&E do Brasil reported indirect costs of $3.0 million for the first nine months of fiscal year 2010, an increase of $.8 million from the $2.2 million reported in the first nine months of fiscal year 2009. During the first quarter of fiscal year 2010, the Company recorded a sale of 16.5 acres of land at its Walden Avenue facility in Lancaster, New York for the sum of approximately $959,000 plus closing costs. This sale resulted in a gain of approximately $809,000 ($453,000 after tax) which positively impacted earnings by $.11 per share.

Income Taxes

Critical Accounting Policies and Use of Estimates

Management's discussion and analysis of financial condition and results of operations discuss the Company's consolidated financial statements, which 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 on various other factors that are believed to be 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.

Revenue Recognition

The Company’s revenues are derived primarily from the professional and technical services performed by its employees or, in certain cases, by subcontractors engaged to perform on under contracts entered into with our clients. The revenues recognized, therefore, are derived from our ability to charge clients for those services under the contracts.

The Company employs three major types of contracts: “cost-plus contracts,” “fixed-price contracts” and “time-and-materials contracts.” Within each of the major contract types are variations on the basic contract mechanism. Fixed-price contracts generally present the highest level of financial and performance risk, but often also provide the highest potential financial returns. Cost-plus contracts present a lower risk, but generally provide lower returns and often include more onerous terms and conditions. Time-and-materials contracts generally represent the time spent by our professional staff at stated or negotiated billing rates.

Fixed price contracts are accounted for on the “percentage-of-completion” method, wherein revenue is recognized as project progress occurs. Time and material contracts are accounted for over the period of performance, in proportion to the costs of performance, predominately based on labor hours incurred. If an estimate of costs 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 use of the percentage of completion revenue recognition method requires the use of estimates and judgment regarding the project’s expected revenues, costs and the extent of progress towards completion. The Company has a history of making reasonably dependable estimates of the extent of progress towards completion, contract revenue and contract completion costs. However, due to uncertainties inherent in the estimation process, it is possible that completion costs may vary from estimates.

Most of our percentage-of-completion projects follow a method which approximates the “cost-to-cost” method of determining the percentage of completion. Under the cost-to-cost method, we make periodic estimates of our progress towards project completion by analyzing costs incurred to date, plus an estimate of the amount of costs that we expect to incur until the completion of the project. Revenue is then calculated on a cumulative basis (project-to-date) as the total contract value multiplied by the current percentage-of-completion. The revenue for the current period is calculated as cumulative revenues less project revenues already recognized. The recognition of revenues and profit is dependent upon the accuracy of a variety of estimates. Such estimates are based on various judgments we make with respect to those factors and are difficult to accurately determine until the project is significantly underway.

For some contracts, using the cost-to-cost method in estimating percentage-of-completion may overstate the progress on the project. For projects where the cost-to-cost method does not appropriately reflect the progress on the projects, we use alternative methods such as actual labor hours, for measuring progress on the project and recognize revenue accordingly. For instance, in a project where a large amount of equipment is purchased or an extensive amount of mobilization is involved, including these costs in calculating the percentage-of-completion may overstate the actual progress on the project. For these types of projects, actual labor hours spent on the project may be a more appropriate measure of the progress on the project.

The Company’s contracts with the U.S. government contain provisions requiring compliance with the Federal Acquisition Regulation (FAR), and the Cost Accounting Standards (CAS). These regulations are generally applicable to all of the Company’s federal government contracts and are partially or fully incorporated in many local and state agency contracts. They limit the recovery of certain specified indirect costs on contracts subject to the FAR. Cost-plus contracts covered by the FAR provide for upward or downward adjustments if actual recoverable costs differ from the estimate billed. Most of our federal government contracts are subject to termination at the convenience of the client. Contracts typically provide for reimbursement of costs incurred and payment of fees earned through the date of such termination.

Federal government contracts are subject to the FAR and some state and local governmental agencies require audits, which are performed for the most part by the Defense Contract Audit Agency (DCAA). The DCAA audits overhead rates, cost proposals, incurred government contract costs, and internal control systems. During the course of its audits, the DCAA may question incurred costs if it believes we have accounted for such costs in a manner inconsistent with the requirements of the FAR or CAS and recommend that our U.S. government financial administrative contracting officer disallow such costs. Historically, we have not experienced significant disallowed costs as a result of such audits. However, we can provide no assurance that such audits will not result in material disallowances of incurred costs in the future.

The Company maintains reserves for cost disallowances on its cost based contracts as a result of government audits. Government audits have been completed and final rates have been negotiated through fiscal year 2001. The Company has estimated its exposure based on completed audits, historical experience and discussions with the government auditors. If these estimates or their related assumptions change, the Company may be required to record additional charges for disallowed costs on its government contracts.

Allowance for Doubtful Accounts and Contract Adjustments

We reduce our accounts receivable and costs and accrued earnings in excess of billings on contracts in process by establishing an allowance for amounts that, in the future, may become uncollectible or unrealizable, respectively. We determine our estimated allowance for uncollectible amounts and allowance for contract adjustments based on management’s judgments regarding our operating performance related to the adequacy of the services performed, the status of change orders and claims, our experience settling change orders and claims and the financial condition of our clients, which may be dependent on the type of client and current economic conditions.

Deferred Income Taxes

We use the asset and liability approach for financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances based on our judgments and estimates are established when necessary to reduce deferred tax assets to the amount expected to be realized in future operating results. Management believes that realization of deferred tax assets in excess of the valuation allowance is more likely than not. Our estimates are based on facts and circumstances in existence as well as interpretations of existing tax regulations and laws applied to the facts and circumstances, with the help of professional tax advisors. Therefore, we estimate and provide for amounts of additional income taxes that may be assessed by the various taxing authorities.

Inflation

Inflation has not had a material impact on the Company’s business because a significant amount of the Company’s contracts are either cost based or contain commercial rates for services that are adjusted annually.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

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

As of the end of the period covered by this report, our management, with the participation of our chief executive officer and 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 chief executive officer and our chief financial officer concluded that 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 chief executive officer and 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

There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal quarter ended May 1, 2010, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, the Company is 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 of the Company believes will have a material adverse effect on the Company’s results of operations, financial condition, cash flows or to any other pending legal proceedings other than ordinary, routine litigation incidental to its business. The Company maintains liability insurance against risks arising out of the normal course of business.

The Company is involved in other litigation arising in the normal course of business. In the opinion of management, any adverse outcome to other litigation arising in the normal course of business would not have a material impact on the financial results of the Company.

Item 2. Changes in Securities and Use of Proceeds

(e) Purchased Equity Securities. The following table summarizes the Company’s purchases of its common stock during the period ended May 1, 2010:

Period		Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs
August 1, 2009 – May 1, 2010		---		---		---		163

Item 3.

Defaults Upon Senior Securities

The Registrant has no information for Item 3 that is required to be presented.

Item 4.

Submission of Matters to a Vote of Security Holders

The Registrant has no information for Item 4 that is required to be presented.

Item 5.

Other Information

The Registrant has no information for Item 5 that is required to be presented.

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)

Registrant filed a Form 8-K report November 23, 2009 to announce an amendment to the Company’s Code of Business Conduct and Ethics. The amendment adopted by the Directors dealt with the manner in which the Company prepares bids in response to client’s proposals.

Registrant filed a Form 8-K report on October 27, 2009 to announce that Harvey J. Gross, a non-executive director of the Company, was choosing not to stand for re-election as a Class B Director at the Annual Meeting of Shareholders on January 21, 2010 but that he would serve out his term.

SIGNATURE

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

	Ecology and Environment, Inc.


Date: June 15, 2010	By:	/s/ H. John Mye III
		H. John Mye III
		Vice President, Treasurer and Chief Financial Officer – Principal Financial and Accounting Officer

Form 10-Q