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 March 1, 2005, 2,435,435 shares of Registrant's Class A Common Stock (par value $.01) and 1,643,045 shares of Class B Common Stock (par value $.01) were outstanding.

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements 

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 2004 Annual Report on Form 10-K filed with the Securities and Exchange Commission.  The results of operations for the six months ended January 29, 2005 are not necessarily indicative of the results for any subsequent period or the entire fiscal year ending July 31, 2005. 


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.   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 on going basis based on past settlement history.  Government audits have been completed through fiscal year 2000 and are currently in process for fiscal year 2001.  However, final rates have not been negotiated under these audits since 1991.  The majority of the balance in the allowance for contract adjustments accounts represent a reserve against possible adjustments for the fiscal years 1992-2004.

          Deferred revenue balances of $320,000 and $1.2 million at January 29, 2005 and July 31, 2004, respectively, represent net advances received under the Saudi and Kuwait contracts.  Those advances are recognized against future progress billings over the respective contract periods.

          d.   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 2004 - 2005. 

          e.   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.

          f.   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.

          g.   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.  An impairment loss of $442,000 ($139,000 net of minority interest and tax) was recognized in fiscal year 2004 for the long-term assets at the Company's fish farm in Jordan.  The impaired assets consist of buildings, improvements and equipment which are continued to be held for use.

          In January 2005, the Company recognized an impairment loss in the amount of $1.6 million pre-tax as a result of its decision to close its Analytical Services Center (ASC) located in Lancaster, N.Y.  This impairment was recognized on the value of the facility as well as the analytical equipment used therein.  Fair value of the facility was determined by an independent appraisal and the equipment values were determined by purchase offers the Company has received from various vendors.  This impairment was precipitated by the Company's decision to close the operation rather than to sustain further losses while attempting to sell the segment as an on-going business.  Continued losses incurred in this segment as a result of market price deterioration and a reduced emphasis by the Federal government on analytical laboratory testing were the basis for this decision.  The ASC's assets are reported under the Company's analytical laboratory services segment.  Operations at the ASC continued beyond the end of the Company's second quarter close due to the completion of existing backlog.  Hence, the impairment loss is shown in the accompanying financial statements as from "continuing operations" and the assets are still classified as "held for use" at January 29, 2005.  Other miscellaneous closing costs are estimated to be in the range of $100,000 - $200,000 and will be expensed as incurred under SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."

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 $181,000 at January 29, 2005 and $465,000 at July 31, 2004.  Management anticipates that the January 29, 2005 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 $11.6 million and $16.2 million at January 29, 2005 and July 31, 2004, respectively.  Within the above billed balances are contractual retainages in the amount of approximately $658,000 at January 29, 2005 and $544,000 at July 31, 2004.  Management anticipates that the January 29, 2005 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 $2.2 million at January 29, 2005 and July 31, 2004.  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 January 29, 2005 the Company has incurred expense of $1,934,000 ($99,000 for the first six months of fiscal year 2005, $944,000 in 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 January 29, 2005 and July 31, 2004, respectively, the Company had letters of credit outstanding totaling $5,753,989 and $8,765,752, respectively.  The Company had no outstanding borrowings for working capital at January 29, 2005 and July 31, 2004. 

          The Company is in compliance with all bank loan covenants at January 29, 2005.

4.       Long-Term Debt and Capital Lease Obligations

          Debt inclusive of capital lease obligations at January 29, 2005 and July 31, 2004 consist of the following:

          The aggregate maturities of long-term debt and capital lease obligations at October 30, 2004 and July 31, 2004 are as follows:

5.       Stock Award Plan

          Effective March 16, 1998, the Company adopted the Ecology and Environment, Inc. 1998 Stock Award Plan (the "1998 Plan").  To supplement the 1998 Plan, the 2003 Stock Award Plan (the "2003 Plan") was approved by the shareholders at the annual meeting held in January 2004 (the 1998 Plan and the 2003 Plan collectively referred to as the "Award Plan").  The 2003 Plan was approved retroactive to October 16, 2003 and will terminate on October 15, 2008.  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 therefore, 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 issued 33,531 shares in October 2004, 47,795 shares in fiscal year 2004, and 38,712 shares in fiscal year 2003 pursuant to the Award Plan.  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 1,167,068 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.        Earnings Per Share

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

In accordance with FAS 128, "Earnings Per Share", potential common shares (i.e., stock options and stock awards) have not been included in the denominator of the diluted per-share computations for the three and six months ended January 29, 2005, as inclusion of such would result in an antidilutive per-share amount since the Company had a loss from continuing operations.

The Company estimates that if it elected to measure compensation cost for employee stock based compensation arrangements under SFAS No. 123, it would not have caused net income and earnings per share to be materially different from their reported amounts.

8.       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 analytical segment recognized a pretax impairment loss in the amount of $1.6 million as a result of its decision to close its Analytical Services Center (ASC) located in Lancaster, N.Y.  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.  In fiscal year 2004, an impairment loss of $442,000 ($139,000 net of minority interest and tax) was recognized for the long-term assets at the Company's fish farm operations in Jordon.

          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 six months ended January 29, 2005 are as follows:

Reportable segments for the six months ended January 31, 2004 are as follows:

9.   Acquisitions

          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.   Walsh began consolidating the balance sheet and operating results of GAL with its own since the date of acquisition.  Walsh's consolidated financial statements are consolidated with the Company's.

        This acquisition has been accounted for under the purchase method with the results of their operations consolidated with the Company's results of operations from the acquisition date.  No proforma statements have been provided due to the relative insignificance of this transaction.

10.   Commitments and Contingencies

        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.

        One of the Company's majority owned subsidiaries is a co-defendant in a lawsuit connected to work performed on a remediation project at a mine site.  The plaintiffs have filed for damages of approximately $35 million.  The subsidiary maintains a $6 million insurance policy applicable to this claim.  The insurance company is defending the claim.  At this time the case is in the beginning stages of discovery and the trial is not scheduled to begin until November 2005.  The subsidiary company intends to vigorously defend this case. 

        On January 8, 2005 a lawsuit was filed in New York State Supreme Court, County of New York by Othman Al-Rashed and Kuwaiti Engineering Group (KEG), as Plaintiffs, against the Consortium of International Consultants, LLC (CIC) and Safege Consulting Engineers (Safege), Index No. 600033-05.  The Summons and Complaint for this lawsuit was served on CIC’s registered agent on February 23, 2005.  CIC is a majority-owned subsidiary of the Company which entered into a multi-year monitoring and assessment contract in Kuwait (the Project).  The Complaint alleges four claims:  (1) a breach of contract claim against Safege for $5,000,000, (2) a claim against CIC for agent fees and a management fees totaling $7,000,000, (3) a further claim by KEG that Safege did not use the services of KEG together with an additional claim for $10,000,000 of punitive damages related thereto, and (4) a claim against CIC and Safege for an accounting based upon the alleged damages claimed in the lawsuit.  The Company is not named as a defendant in the lawsuit.  At this time, the Company believes that the claims in this lawsuit are either without merit or are the responsibility of Safege.

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


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

Liquidity and Capital Resources

        At January 29, 2005 the Company had a working capital balance of $26.5 million, down $964,000 from the $27.5 million balance reported at July 31, 2004.  Cash and cash equivalents increased $436,000 due to a $2.3 million decrease in accounts payable, a $1.2 million increase in other accrued liabilities, and a $2.9 million decrease in accounts receivable.  As of January 29, 2005 the Company has receivables outstanding on the Saudi and Kuwait contracts of $8.0 and $3.5 million respectively.  Net advances on these contracts at January 29, 2005 are $320,000, which are backed by letters of credit.  These advances, shown as deferred revenue, have decreased $420,000 due to work performed on these contracts during the first six months of fiscal year 2005.  The Company had no outstanding borrowings for working capital as of January 29, 2005.

        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 January 29, 2005 in the amount of $5.8 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 there are no outstanding borrowings under the lines of credit and there is $27.7 million of line still available at January 29, 2005.  There are no significant additional working capital requirements pending at January 29, 2005.  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 fiscal year 2005.

Contractual Obligations

Results of Operations

Net Revenue

Fiscal Year 2005 vs 2004

        Net revenues for the second quarter of fiscal year 2005 were $17.4 million, down 17% from the $21.0 million reported in the second quarter of fiscal year 2004.  Decreased net revenues from the Company’s contracts in Saudi Arabia and Kuwait accounted for the majority of this reduction.  Net revenues from those contracts decreased $4.3 million or 70% due to winding down activity on these contracts.  Percentage of completion on contracts in the Middle East range from 85% to 94% and it is anticipated that most of the contracts will be substantially completed by the end of fiscal year 2005.  Net revenues from commercial clients increased $860,000 or 43% from the $2.0 million reported in the second quarter of fiscal year 2004.  Net revenues from state clients increased $416,000 or 13% from the $3.3 million reported in the second quarter of fiscal year 2004.  Net revenues from Department of Defense (DOD) clients decreased $606,000 or 21% from the $2.9 million reported in the second quarter of fiscal year 2004.  The decrease in DOD net revenues is attributable to reduced work levels on various United States Army Corps of Engineers (USACE) contracts.

        Walsh Environmental reported net revenues of $2.6 million for the second quarter of fiscal year 2005, an increase of $885,000 from the $1.7 million reported in the second quarter of fiscal year 2004.  The majority of this increase was due to the consolidation of Gustavson Associates, acquired by Walsh Environmental during the fourth quarter of fiscal year 2004.  Gustavson Associates reported net revenues of $447,000 during the second quarter of fiscal year 2005.

Fiscal Year 2004 vs 2003

        Net revenues for the second quarter of fiscal year 2004 were $21.0 million, compared to the $21.4 million reported in the second quarter of fiscal year 2003.  The decrease in net revenues for the second quarter is mainly attributable to a decrease in work from the Company’s commercial and US department of Defense (DOD) sectors.  Offsetting these decreases was an increase in net revenue from the Company’s contracts in Saudi Arabia and Kuwait.  The net revenues from the work in Saudi Arabia and Kuwait increased 24% from the second quarter of fiscal year 2003 to $6.2 million.  

Income From Continuing Operations Before Income Taxes and Minority Interest

Fiscal Year 2005 vs 2004

        The Company’s loss from continuing operations before income taxes and minority interest for the second quarter of fiscal year 2005 was $2.4 million, down from the $1.9 million of income reported in the second quarter of the prior year.  This decrease was mainly attributable to reduced net revenues during the second quarter of fiscal year 2005 along with the Company’s decision to close its Analytical Services Center (ASC) in Lancaster, N.Y. which resulted in a pretax impairment loss of $1.6 million.  This impairment was recognized on the value of the facility as well as the analytical equipment used therein.  The impairment was precipitated by the Company’s decision to close the operation rather than to sustain further losses while attempting to sell the segment as an on-going business.  Continued losses incurred in this segment as a result of market price deterioration and a reduced emphasis by the Federal government on analytical laboratory testing were the basis for this decision.  The ASC reported an operating loss of $614,000 for the second quarter of fiscal year 2005.  Remaining backlog was completed and testing at the ASC ceased as of February 18, 2005.  The majority of the staff was laid off as of that date.  Other miscellaneous closing costs are estimated to be in the range of $100,000-$200,000 and will be expensed as incurred. 

        Administrative and indirect costs increased $729,000 or 14% during the second quarter of fiscal year 2005.  This increase was attributable to reduced staff utilization, $152,000 increase in expenses from E & E do Brasil due to a larger office space and administrative staff, consolidation of Gustavson Associates to Walsh Environmental, and the Company's on-going compliance work in connection with the requirements of the Sarbanes-Oxley Act.  The Company incurred approximately $100,000 in costs associated with the compliance work for the Sarbanes-Oxley Act during the second quarter of fiscal year 2005.  Gustavson Associates, acquired by Walsh Environmental in May of fiscal year 2004, reported $144,000 in administrative and indirect costs during the quarter. 

Fiscal Year 2004 vs 2003

        The Company’s income from continuing operations before income taxes and minority interest for the second quarter of fiscal year 2004 was $1.9 million, up $298,000 from the $1.6 million reported in the prior year.  The increase is mainly attributable to the Company’s Saudi Arabia and Kuwait contracts.   Offsetting this increase, the ASC reported an operating loss of $403,000 for the second quarter of fiscal year 2004 compared to operating loss of $252,000 for the prior year, an increased loss of $151,000 or approximately $.02 per share.  The ASC reported a decrease in work in Kuwait as well as a loss of funding on a significant state project.  The ASC has already received a significant inflow of work in the third quarter of fiscal year 2004 from the Kuwait contracts and anticipates this to continue through the balance of the fiscal year.  This will significantly improve the performance of the lab for the second half of the fiscal year.   

        Marketing expenses increased 22% in the second quarter of fiscal year 2004.  The Company has increased the ASC marketing staff to help broaden the commercial market base for the ASC.  Additional staff has been also added to help the Company’s business development efforts in the homeland security and international markets.  Exchange gains were incurred as a result of contracts in Kuwait and Venezuela.  Realized gains for the second quarter amounted to $79,000.

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 has 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 second quarter of fiscal year 2005, the shrimp farm reported a loss before taxes of $43,000.  Although not expected to be significant, expenses will continue to be necessary for overall farm security, maintenance and upkeep.  As of January 29, 2005 the shrimp farm operation is still being held for sale.

American Jobs Creation Act of 2004

        In October 2004, Congress passed, and the President signed into law, the American Jobs Creation Act of 2004 (the “Act”).  Some key provisions of the act affecting the Company are the repeal of the United States export tax incentive known as the extraterritorial income exclusion (EIE) and the implementation of a domestic manufacturing deduction.  The Company is still assessing the impact of the Act.  The EIE is phased out over the calendar years 2005 and 2006 with an exemption for binding contracts with unrelated persons entered into before September 18, 2003.  These phase-out provisions will allow the Company to maintain an EIE deduction of an undeterminable amount through fiscal year 2007.  The Company believes that it will accrue some benefits from the domestic manufacturing deduction, although such benefits cannot be quantified at this time.  The domestic manufacturing deduction will be phased in over a six-year period beginning with the Company’s fiscal year 2005.  The Company is currently evaluating the impact of the repatriation provisions and expects to complete this evaluation by the end of the current fiscal year.  The dollar amount of possible dividends being considered ranges from $0 to $2 million.  The income tax effect would range from $0 to approximately $100,000.  As of January 29, 2005 and based on the tax laws in effect at that time, it is the Company’s intention to continue to indefinitely reinvest undistributed foreign earnings and accordingly, no deferred tax liability has been recorded in connection therewith.

Recent Accounting Pronouncements

        In December 2004, the Financial Accounting Standards Board (FASB) issued its final standard on accounting for share-based payments (SBP), FASB Statement No. 123R (revised 2004), Share-Based Payment.   The Statement requires companies to expense the value of employee stock options and similar awards.   Under FAS 123R, SBP awards result in a cost that will be measured at fair value on the awards' grant date, based on the estimated number of awards that are expected to vest.  Compensation cost for awards that vest would not be reversed if the awards expire without being exercised.  The effective date for public companies is interim and annual periods beginning after June 15, 2005, and applies to all outstanding and unvested SBP awards at a company's adoption.  Management does not anticipate that this Statement will have a significant impact on the Company's financial statements.

        In February 2005, the Securities and Exchange Commission (SEC) issued a staff letter outlining their positions on accounting by lessees for the amortization of leasehold improvements in a lease with renewals, the recognition of rent in leases containing lease holidays, and landlord/tenant incentives.  The Company has reviewed the impact of these positions on its recognition of rent costs and determined that there is no material impact on its current or prior financial statements as presented in the accompanying filing.

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.  The Company recently settled fiscal years 1990 and 1991 for amounts within the anticipated range.  However, final rates have not been negotiated under these audits since 1992.  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 and on its Analytical Services Center in fiscal year 2005.  An estimate of the fair value of the assets was made based on external appraisals of the land and buildings and internal estimates and or external bids on the realizable value of the equipment.  The Company recorded an impairment loss on its fish farm operations in Jordan in fiscal year 2004.  An impairment loss was necessary due to the uncertainty that the farm's estimated future net cash flows would be sufficient to recover the carrying value of its long-lived assets.  If these estimates or their related assumptions change, the Company may be required to record additional impairment losses 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.  Walsh obtained independent valuations to determine opening balance sheet values.  Walsh began consolidating the balance sheet and operating results of GAL with its own since the date of acquisition.  Walsh’s consolidated financial statements are consolidated with the Company’s.  No proforma statements have been provided due to the relative insignificance of this transaction.

        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), to three new partners.  The new partners are responsible for the in-country marketing and operations of the subsidiary.  Any previous earnings, assets and liabilities remained with Ecology and Environment, Inc.  The new partners have contributed their business contacts and talented staff from their old firm.  The Company has provided 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.

        During the second quarter of fiscal year 2005, the Company formed three new subsidiaries as well as a new joint venture.  These entities were formed for the purpose of obtaining future work for the Company in the Middle East, Russia, and the State of California.  These entities were not operational.  The new entities are as follows:  MiddleEast Environmental Consultants, LLC; E & E International, LLC;  E & E Environmental Services, LLC; and E & E Ward BMS Consulting Association (Joint Venture).

        On January 20^th a member of Walsh Unit Holders LLC exercised his option to purchase an additional 325 shares of Walsh Environmental Scientists and Engineers, LLC at a cost of $9,502.  This caused the E & E, Inc. ownership percentage in this company to drop by one half of a percent.  There are additional purchase options outstanding in the amount of $84,694 which will expire on June 30, 2005.  If these options are exercised, they could cause a reduction in the ownership percentage of E & E, Inc. from 59.5% to 55%

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  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 limited default risk, market risk and reinvestment risk.  As of January 29, 2005, 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.

        The Company is currently documenting, evaluating, and testing its internal controls in order to allow management to report on and attest to, and its' independent public accounting firm to attest to, the Company's internal controls as of July 31, 2006, as required by Section 404 of the Sarbanes-Oxley Act. The Company expects to devote substantial time and expense in this endeavor during fiscal year 2005 and 2006.  If weaknesses in our existing information and control systems are discovered that impede our ability to satisfy Sarbanes-Oxley reporting requirements, the Company must successfully and timely implement improvements to those systems. There is no assurance that the Company will be able to meet these requirements.


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 

       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.

        One of the Company's majority owned subsidiaries is a co-defendant in a lawsuit connected to work performed on a remediation project at a mine site.  The plaintiffs have filed for damages of approximately $35 million.  The subsidiary maintains a $6 million insurance policy applicable to this claim.  The insurance company is defending the claim.  At this time the case is in the beginning stages of discovery and the trial is not scheduled to begin until November 2005.  The subsidiary company intends to vigorously defend this case. 

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

         On January 4, 2005 a lawsuit was filed in New York State Supreme Court, County of New York by Othman Al-Rashed and Kuwaiti Engineering Group (KEG), as Plaintiffs, against the Consortium of International Consultants, LLC (CIC) and Safege Consulting Engineers (Safege), Index No. 600033-05.  CIC is a majority-owned subsidiary of the Company which entered into a multi-year monitoring and assessment contract in Kuwait (the Project).  The Complaint alleges four claims:  (1) a breach of contract claim against Safege for $5,000,000, (2) a claim against CIC for agent fees and a management fees totaling $7,000,000, (3) a further claim by KEG that Safege did not use the services of KEG together with an additional claim for $10,000,000 of punitive damages related thereto, and (4) a claim against CIC and Safege for an accounting based upon the alleged damages claimed in the lawsuit.  The Company is not named as a defendant in the lawsuit.  At this time, the Company believes that the claims in this lawsuit are either without merit or are the responsibility of Safege.

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 quarter ended January 29, 2005:

          (1)   The Company purchased 31,000 shares of its Class A common stock during the second quarter of its fiscal year ended July 31, 2005 pursuant to a 200,000 share repurchase program approved at the October 26, 2000 Board of Directors meeting.  The purchases were made in open-market transactions.    

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:  March 15, 2005

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