UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q

Commission File Number 1-9065

Ecology and Environment, Inc.
(Exact name of registrant as specified in its charter)

(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   [X]            No   [   ]

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     

Yes   [   ]           No   [X]

      At June 1, 2004,  2,445,974 shares of Registrant's Class A Common Stock (par value $.01) and 1,663,261 shares of Class B Common Stock (par value $.01) were outstanding.

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements 

 

Ecology and Environment, Inc.
Consolidated Statement of Changes in Shareholders' Equity
																	Accumulated
		Common Stock										Capital in					Other
		Class A				Class B						Excess of			Retained		Comprehensive			Unearned			Treasury Stock
		Shares		Amount		Shares			Amount			Par Value			earnings		Income			Compensation			Shares			Amount
Balance at July 31, 2002		2,468,571	$	24,686		1,712,068		$	17,121		$	17,372,444		$	26,570,576		$	(1,681,535	)	$	(222,921	)	108,976		$	(806,401	)
	Net income	---		---		---			---			---			(1,201,955	)		---			---		---			---
	Foreign currency translation reserve	---		---		---			---			---			---			(453,419	)		---		---			---
	Cash dividends paid ($.33 per share)	---		---		---			---			---			(1,356,227	)		---			---		---			---
	Unrealized investment gain, net	---		---		---			---			---			---			2,854			---		---			---
	GAC dividends	---		---		---			---			---			(44,890	)		---			---		---			---
	Repurchase of Class A common stock	---		---		---			---			---			---			---			---		39,508			(242,337	)
	Stock options	500		5		---			---			3,620			---			---			---		---			---
	Issuance of stock under stock award plan, net	---		---		---			---			60,003			---			---			(255,184	)	(38,712	)		286,469
	Amortization, net of tax	---		---		---			---			---			---			---			307,373		---			---
	Forfeitures	---		---		---			---			31,907			---			---			14,180		---			(69,017	)
Balance at July 31, 2003		2,469,071	$	24,691		1,712,068		$	17,121		$	17,467,974		$	23,967,504		$	(2,132,100	)	$	(156,552	)	109,772		$	(831,286	)
	Net income	---		---		---			---			---			2,470,056			---			---		---			---
	Foreign currency translation reserve	---		---		---			---			---			---			(101,237	)		---		---			---
	Cash dividends paid ($.17 per share)	---		---		---			---			---			(698,155	)		---			---		---			---
	Unrealized investment gain, net	---		---		---			---			---			---			(73,083	)		---		---			---
	Conversion of common stock - B to A	11,000		110		(11,000	)		(110	)		---			---			---			---		---			---
	Repurchase of Class A common stock	---		---		---			---			---			---			---			---		10,631			(94,716	)
	Stock options	2,150		22		---			---			15,916			---			---			---		---			---
	Issuance of stock under stock award plan, net	---		---		---			---			111,229			---			---			(214,445	)	(47,795	)		367,333
	Amortization, net of tax	---		---		---			---			---			---			---			133,357		---			---
	Forfeitures	---		---		---			---			1,456			---			---			2,686		1,446			(8,893	)
Balance at May 1, 2004		2,482,221	$	24,823		1,701,068		$	17,011		$	17,596,575		$	25,739,405		$	(2,306,420	)	$	(234,954	)	74,054		$	(567,562	)

Ecology and Environment, Inc.
Notes To Consolidated Financial Statements
(Unaudited)

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.  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 financial statements and the notes thereto included in E & E's 2003 Annual Report on Form 10-K filed with the Securities and Exchange Commission.  The results of operations for the three month and nine month periods ended May 1, 2004 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, 2004. 

1.       Summary of significant accounting principles

          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 are the 50% ownership in two Chinese operating joint ventures, Beijing Yi Yi Ecology and Engineering Co. Ltd. and The Tianjin Green Engineering Company.  These joint ventures are accounted for under the equity method.  All significant intercompany transactions and balances have been eliminated.  Certain amounts in the prior years' consolidated financial statements and notes have been reclassified to conform with the current year presentation.
 
          b.   Use of estimates

          The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.  Actual results may differ from those estimates.

          c.   Reclassifications

          Certain prior year amounts were reclassified to conform to the July 31, 2003 financial statement presentation.

          d.   Revenue recognition

          The majority of the Company's revenue is derived from environmental consulting work, with the balance derived from sample analysis (E & E Analytical Services Center) and aquaculture.  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:

         Substantially all of the Company's cost-type work is with federal governmental agencies and, as such, is subject to audits after contract completion.  Provisions for adjustments to the revenue accrued under these cost-type contracts are provided for on an annual basis based on past settlement history.  Government audits have been completed through fiscal year 1994 and are currently in process for fiscal years 1995-2001.  However, final rates have not been negotiated under these audits since 1989.  The majority of the balance in the allowance for contract adjustments accounts represent a reserve against possible adjustments for the fiscal years 1990-2003.

          Deferred revenue balances of $1.6 million and $11.2 million at May 1, 2004 and July 31, 2003, respectively, represent net advances received under the Saudi and Kuwait contracts.  Those advances are recognized against future progress billings over the respective contract periods.

          e.   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 deferred 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 translation adjustments which are included in net income.  There were no highly inflationary economy translation adjustments for fiscal years 2003 - 2004.  Management has also estimated and recorded in the current tax accounts the benefits attributable to the extraterritorial income tax deduction.

          f.   Income taxes

          The Company follows the asset and liability approach to account for income taxes.  This approach requires the recognition of deferred tax liabilities and assets 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 be reduced 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.

          g.   Earnings per share

          Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

          h.   Impairment of Long-Lived Assets

          The Company accounts for impairment of long-lived assets in accordance with Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets."  SFAS No. 144 required that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the book value of the asset may not be recoverable.  The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows 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 recognized an impairment loss of $5,007,364 ($3,010,005 net of tax) on its shrimp farm operations in FY 2003.  No impairment loss was recognized in fiscal year 2004 to date.

2.       Contract Receivables, net

          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 and fees earned of approximately $286,000 at May 1, 2004 and $33,000 at July 31, 2003.  Management anticipates that the May 1, 2004 unbilled receivables will be substantially billed and collected within one year.  Included in the balance of receivables for industrial customers and state and municipal customers are receivables due under the contracts in Saudi Arabia and Kuwait of $23.9 million and $17.4 million at May 1, 2004 and July 31, 2003, respectively.  Within the above billed balances are contractual retainages in the amount of approximately $493,000 at May 1, 2004 and $496,445 at July 31, 2003.  Management anticipates that the May 1, 2004 retainage balance will be substantially collected within one year.  Included in other accrued liabilities is an additional allowance for contract adjustments relating to potential cost disallowances on amounts billed and collected in current and prior years' projects of approximately $1,729,488 at May 1, 2004 and July 31, 2003.  An allowance for contract adjustments is recorded for contract disputes and government audits when the amounts are estimatable.

          The contracts in Saudi Arabia are through the Company's majority owned (66 2/3%) subsidiary Ecology and Environment of Saudi Arabia Co., LTD. (EESAL). The Company has an agreement with its' minority shareholder to divide any profits in EESAL from the current contracts equally, and to pay to the minority shareholder a commission of 5% of the total contract values. The commission and additional profit sharing covers on-going representation in the Kingdom, logistical support including the negotiation and procurement of Saudi national personnel, facilities, equipment, licenses, permits, and any other support deemed necessary in the implementation and performance of the Saudi contracts. As of May 1, 2004 the Company has incurred expense of $1,497,000 ($606,000 for the first nine months of fiscal year 2004, $505,000 in fiscal year 2003 and $386,000 in fiscal year 2002) under the terms of this commission agreement.

3.       Line of Credit

          The Company maintains an unsecured line of credit available for working capital and letters of credit of $20 million with a bank at ½% below the prevailing prime rate.  A second line of credit has been established at another bank for up to $13.5 million exclusively for letters of credit.  At May 1, 2004 and July 31, 2003, respectively, the Company had letters of credit outstanding totaling $11,382,920 and $16,822,254, respectively.  The Company had outstanding borrowings for working capital of $1,700,000 at May 1, 2004 and $0 at July 31, 2003. 

          The Company has re-negotiated its covenants under its bank line of credit agreements and is in compliance with all such covenants at May 1, 2004.

4.       Long-Term Debt and Capital Lease Obligations

          Debt inclusive of capital lease obligations at May 1, 2004 and July 31, 2003 consist of the following:

          (a)  Consists of an interest free overdraft in a foreign bank account which was eliminated by subsequent deposits in the amount of $2.9 million several days after fiscal year end.

          The aggregate maturities of long-term debt and capital lease obligations at May 1, 2004 and July 31, 2003 are as follows:

5.       Stock Award Plan

          Effective March 16, 1998, the Company adopted the Ecology and Environment, Inc. 1998 Stock Award Plan (the "Award Plan") under which 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 therefore,  based upon the fair market value of the common stock at the time of the award.  The plan requires a three-year vesting period. 

          The 1998 plan agreement provides that the stock cannot be sold, assigned, or transferred before a three-year vesting period is completed and that the shares are forfeited if an individual's employment is terminated before the vesting period is completed.  Accordingly, the Company is amortizing the expense associated with the issuance of the shares ratably over the vesting period.

          The Company issued 47,795 shares in January 2004,  38,712 shares in fiscal year 2003, 50,242 shares in fiscal year 2002, and 92,339 shares in fiscal year 2001.  Unearned compensation is recorded at the time of issuance and is being amortized over the vesting period.

6.       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 an aggregate of 1,229,118 shares Class B Common Stock owned by them and the former spouse of one of the individuals and the children of the individuals.  The agreement provides that prior to accepting a bona fide offer to purchase all or any 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.

7.       Segment Reporting

          Ecology and Environment, Inc. has three reportable segments: consulting services, analytical laboratory services, and aquaculture.  The consulting services segment provides broad based environmental services encompassing audits and impact assessments, surveys, air and water quality management, environmental engineering, environmental infrastructure planning, and industrial hygiene and occupational health studies to a world wide base of customers.  The analytical laboratory provides analytical testing services to industrial and governmental clients for the analysis of waste, soil and sediment samples.  The fish farm located in Jordan produces tilapia fish grown in a controlled environment for markets worldwide.  The aquaculture segment results for fiscal year 2003 includes an impairment loss of $5.0 million ($3.0 million net of tax) as a result of the Company's decision to cease operations of its shrimp farm operations located in Costa Rica.  The assets are treated as "held for sale" in the accompanying financial statements and the shrimp farm is still being actively marketed to potential buyers.

          The Company evaluates segment performance and allocates resources based on operating profit before interest income/expense and income taxes.  The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies.  Intercompany sales from the analytical services segment to the consulting segment are recorded at market selling price, intercompany profits are eliminated.  The Company's reportable segments are separate and distinct business units that offer different products.  Consulting services are sold on the basis of time charges while analytical services and aquaculture products are sold on the basis of product unit prices.

Reportable segments for the nine months ended May 1, 2004 are as follows:

(1)   Net revenue of $14,638 from discontinued operations (sale of remaining inventory and miscellaneous supplies) is excluded from this table.
(2)   Net revenues are attributed to countries based on the location of the customers.  Net revenues in foreign countries includes $12.2 million in Saudi Arabia and $8.9 million  in Kuwait.


Reportable segments for the nine months ended April 26, 2003 are as follows:

(1)   Net revenue of $1,007,749 and depreciation expense of  $178,610 from discontinued operations is excluded from this table.
(2)   Net revenues are attributed to countries based on the location of the customers.  Net revenues in foreign countries includes $7.7 million in Saudi Arabia and $7.6 million in Kuwait.

8.       Subsequent Event

          On May 3, 2004 the Company's sixty-percent owned subsidiary, Walsh Environmental Scientists and Engineers, LLC (Walsh), acquired a sixty-percent interest in Gustavson Associates, LLC (GAL).  Walsh paid $150,000 for its interest in GAL.  GAL is an independent oil and minerals consultancy providing services to banks, investors, government agencies and industrial clients around the world.  GAL had sales revenue of approximately $1.3 million for each of the prior two years.  Walsh is currently obtaining independent valuations to determine opening balance sheet values.  Walsh will consolidate the balance sheet and operating results of GAL with its own beginning in the fourth quarter of fiscal year 2004.  Walsh's consolidated financial statements are consolidated with the Company's.

9.       Transfer of Ownership Interest in Ecology and Environment do Brasil Ltda. 

          On the 8^th of January 2004 the company entered into an agreement to grant a forty-eight percent stake in its Brazilian subsidiary, Ecology and Environment do Brasil, Ltda. (a limited partnership).   The new partners will be responsible for the in-country marketing and operations of the subsidiary.  Any previous earnings, assets and liabilities will remain with Ecology and Environment, Inc.  The company has also committed to provide an eighty thousand dollar capital contribution to move the office operations from Sao Paulo to Rio de Janeiro.  Rio de Janeiro is where the company believes it will have a more strategic location to market its target clients.

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

Liquidity and Capital Resources

        At May 1, 2004 the Company had a working capital balance of $28.0 million, up $570,000 from the $27.5 million balance reported at July 31, 2003.  Cash and cash equivalents decreased $4.9 million due to a $1.9 million decrease in accounts payable along with a $2.0 million decrease in the current portion of long-term debt.  The decrease in the current portion of long-term debt was due to the receipt of deposits to offset the $2.1 million bank overdraft recorded in July 2003.  Investment securities decreased $3.9 million as a result of the sale of securities to meet Company cash flow needs.  Contracts receivable increased $3.9 million.  As of May 31, 2004 the Company has receivables outstanding on the Saudi and Kuwait contracts of $11.6 and $12.3 million respectively.  Net advances on these contracts at May 1, 2004 are $1.6 million, which are backed by letters of credit.  These advances, shown as deferred revenue, have decreased $6.9 million due to work performed on these contracts during the first nine months of fiscal year 2004.  The Company had outstanding borrowings for working capital of $1,700,000 at May 1, 2004.

        The Company maintains an unsecured line of credit of $20.0 million with a bank at ½% below the prevailing prime rate.  A second line of credit is available at another bank for up to $13.5 million, exclusively for letters of credit.  The Company has outstanding letters of credit (LOC’s) at May 1, 2004 in the amount of $11.4 million.  These LOC’s were obtained to secure advance payments and performance guarantees for contracts in the Middle East.  After LOC’s and short-term borrowings of $1.7 million, there are no outstanding borrowings under the lines of credit and there is $4.8 million of line still available for LOC's and $15.6 million available for unsecured borrowings at May 1, 2004.  There are no significant additional working capital requirements pending at May 1, 2004.

Contractual Obligations

(1) Represents rents for office and warehouse facilities
(2) Consists of commitment to purchase 60% of Gustavson Associates, LLC – refer to Subsequent Event footnote in accompanying financial statements.
(3) Consists of Deferred Revenue on the Saudi Arabia and Kuwait contracts

Results of Operations

Net Revenue

        Net revenues for the third quarter of fiscal year 2004 were $24.7 million, compared to the $24.2 million reported in the third quarter of fiscal year 2003.  The increase in net revenues for the third quarter was attributable to an increase in work from the Company’s contracts in Saudi Arabia and Kuwait.  Third quarter net revenues from the work in Saudi Arabia and Kuwait increased 49% to $7.9 million.  Offsetting this increase were decreases in the Company’s commercial and Department of Defense (DOD) sectors.  The Company reported commercial net revenues for the third quarter of fiscal year 2004 of $1.7 million, down 63% from the $4.6 million reported in the third quarter of fiscal year 2003.  This decrease in commercial net revenues is the result of the completion of a major pipeline project in early fiscal year 2004.  Net revenues reported for DOD clients were $3.2 million for the third quarter of fiscal year 2004, down 27% from the $4.4 million reported in the third quarter of fiscal year 2003.  The decrease in DOD net revenues is due primarily to a decrease of work with the Navy Atlantic Division and at the Mountain Home AFB

        Net revenues for the third quarter of fiscal year 2003 were $24.2 million, up 35% from the $17.9 million reported in third quarter of fiscal year 2002.  The increase in net revenues was achieved across a broad range of customers.  The Company’s contracts in Saudi Arabia and Kuwait together with increases in net revenues from various commercial and US Department of Defense (DOD) clients accounted for the majority of the increase.  The Saudi and Kuwait contracts reported increased net revenues for the third quarter of fiscal year 2003 of $1.1 million and $1.0 million respectively.  The Company reported commercial net revenues for the third quarter of fiscal year 2003 of $4.6 million, up 156% from the $1.8 million reported in the third quarter of fiscal year 2002.  This increase is mainly attributable to the increase in work on pipeline projects.  Net revenues reported for DOD clients were $4.4 million for the third quarter of fiscal year 2003, up 52% from the $2.9 million reported in the third quarter of fiscal year 2002.  The increase in DOD net revenues is due primarily to projects with the Navy Atlantic Division, USACE Kansas City, USACE Albuquerque and a new contract at the Mountain Home AFB.

Income From Continuing Operations Before Income Taxes and Minority Interest

The Company’s income from continuing operations before income taxes and minority interest for the third quarter of fiscal year 2004 was $1.7 million, down 11% from the $1.9 million reported in the third quarter of the prior year.  The Company has continued to work on the Middle Eastern contracts in Saudi Arabia and Kuwait, including a significant inflow of lab work from Kuwait for the Company’s Analytical Services Center (ASC) during the third quarter of fiscal year 2004.  The ASC reported an operating income of $133,000 for the third quarter of fiscal year 2004 compared to operating income of $42,000 for the third quarter of the prior year.  Indirect expenses have increased as the Company continues business development efforts in the homeland security and international markets.  The Company has increased the ASC marketing staff to help broaden the commercial market base for the ASC.  During the third quarter of fiscal year 2004, a gain of $200,000 was recorded on the sale of investment securities.

The Company’s income before income taxes and minority interest for the third quarter of fiscal year 2003 was $1.9 million, up 46% from the $1.3 million reported in the third quarter of fiscal year 2002.  The increase in income before taxes and minority interest was mainly attributable to continued success at increasing efficiencies and obtaining higher margin work.  The Company’s Analytical Services Center (ASC) reported operating income of $42,000 for the third quarter of fiscal year 2003 compared to an operating loss of $302,000 for the third quarter of fiscal year 2002.  The ASC has benefited from additional sales revenue or approximately $900,000 under the Kuwait contract and improved production efficiencies due to utilization of new equipment and testing methods.  The Company’s subsidiaries, excluding the Shrimp Farm, reported an increasein income before income taxes and minority interest of $136,000 for the third quarter of fiscal year 2003. 

Discontinued Operations

During the fourth quarter of fiscal year 2003, the Company made the decision to discontinue its Costa Rican shrimp farm operation, Frutas Marinas S.A.  The farm had failed to achieve planned production estimates.  Operations management was unable to control repeated outbreaks of disease, primarily White Spot Syndrome Virus resulting in repeated operating losses for the last three years all amid depressed selling prices for the shrimp.  The Company made the decision to terminate operations at its Board of Directors’ meeting in July 2003 and has embarked on a program to liquidate the assets within one year.  In accordance with Financial Accounting Standards No 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company reviewed the assets of Frutas Marinas S.A. to determine the extent of the impairment loss in the carrying value of the assets.  The Company has estimated the fair value of its assets based on an appraisal of the property for general farm use (the predominate land use surrounding the farm) due to the anticipated difficulty in selling the property as a shrimp farm operation.  As a result, the Company recognized an impairment loss on discontinued operations of $5,007,364 ($3,010,005 net of tax) during the fourth quarter of fiscal year 2003.  During the third quarter of fiscal year 2004, the shrimp farm reported a loss before taxes of $79,000.  Although not expected to be significant, expenses will continue to be necessary for overall farm security, maintenance and upkeep.  As of May 1, 2004 the shrimp farm operation is still being held for sale.

The shrimp farm operation reported a loss before taxes of $643,000 for the third quarter of fiscal year 2003, an increased loss of $161,000 from the prior year.

Critical Accounting Policies and Use of Estimates

        Management's discussion and analysis of financial condition and results of operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United State 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, inventories, 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.

        Management believes the following accounting policies involve its more significant judgments and estimates used in the preparation of its consolidated financial statements.  The Company maintains reserves for cost disallowances on its cost based contracts as a result of government audits.  However, final rates have not been negotiated under these audits since 1989.  The Company has estimated its exposure based on completed audits, historical experience and discussions with the government auditors.  The Company recorded an impairment loss on its shrimp farm operation in fiscal year 2003.  An estimate of the fair value of its assets was made based on external appraisals of the land and buildings and internal estimates of the realizable value of the equipment.  If these estimates or their related assumptions change, the Company may be required to record additional impairment losses for its shrimp farm operation or additional charges for disallowed costs on its government contracts.

Changes in Corporate Entities

On May 3, 2004 the Company’s sixty-percent owned subsidiary, Walsh Environmental Scientists and Engineers, LLC (Walsh), acquired a sixty-percent interest in Gustavson Associates, LLC (GAL).  Walsh paid $150,000 for its interest in GAL.  GAL is an independent oil and minerals consultancy providing services to banks, investors, government agencies and industrial clients around the world.  GAL had sales revenue of approximately $1.3 million for each of the prior two years.  Walsh is currently obtaining independent valuations to determine opening balance sheet values.  Walsh will consolidate the balance sheet and operating results of GAL with its own beginning in the fourth quarter of fiscal year 2004.  Walsh’s consolidated financial statements are consolidated with the Company’s.


Item 3.    Quantitative and Qualitative Disclosures About Market Risk

          The Company may have exposure to market risk for change in interest rates, primarily related to its investments.  The Company does not have any derivative financial instruments included in its investments.  The Company invests only in instruments that meet high credit quality standards.  The Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk.  As May 1, 2004, the Company's investments consisted of short-term commercial paper and mutual funds.  The Company does not expect any material loss with respect to its investments.

Item 4.    Controls and Procedures

(a)      Evaluation of disclosure controls and procedures. 

          The Company's chief executive officer and chief financial officer have concluded that the Company's disclosure controls and procedures (as defined in Exchange Act Rule 13a-14(c)) are sufficiently effective to ensure that the information required to be disclosed by the Company in the reports it files under the Exchange Act is gathered, analyzed and disclosed with adequate timeliness, accuracy and completeness, based on an evaluation of such controls and procedures conducted as of the end of the period covered by this quarterly report.

(b)      Changes in internal controls:  There have been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above.

      

PART 2 - OTHER INFORMATION

Item 1.   Legal Proceedings

          The Registrant has no information for Item 1 that is required to be presented.

Item 2.   Changes in Securities and Use of Proceeds

          The Registrant has no information for Item 2 that is required to be presented.

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 one report on Form 8-K during the third quarter ended May 1, 2004.  That report was filed on March 17, 2004 and reported the Company's results of operations and financial condition for its second quarter ending January 31, 2004.

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, 2004

/s/  RONALD L. FRANK                                                    RONALD L. FRANK EXECUTIVE VICE PRESIDENT CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL ACCOUNTING OFFICER)