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

Liquidity and Capital Resources

Operating activities provided $1.7 million of cash during the first six months of fiscal year 2009. This increase was mainly attributable to the reported $2.4 million in net income and a $.7 million increase in income taxes payable due to the increased profitability during the first six months of fiscal year 2009. Other accrued liabilities increased $.7 million during the first six months of fiscal year 2009. Accounts payable increased $.6 million during the first six months of fiscal year 2009 attributable to the increased work levels throughout the Company. Offsetting these were increases in accounts receivable and other current assets. Accounts receivable increased $3.2 million during the first six months of fiscal year 2009 due to increased revenues. Other current assets increased $1.1 million due to an increase in prepaid insurance and prepaid project costs.

Financing activities consumed $3.8 million of cash during the first six months of fiscal year 2009. The Company paid dividends in the amount of $777,000 or $.19 per share and repurchased 207,941 shares of the Class A common stock for $1.8 million. Net cash outflow on long-term debt and capital lease obligations was $751,000 due mainly to the repayment of a $1.0 million loan by E&E do Brasil. Distributions to minority partners during the first six months of fiscal year 2009 were approximately $435,000.

The Company maintains unsecured lines of credit available for working capital and letters of credit of $19 million with various banks at one-half percent below the prevailing prime rate. Other lines are available solely for letters of credit in the amount of $18.5 million. The Brazilian subsidiary in July 2008 borrowed $1 million under a four month term note at 5.19% annualized interest rate. The Brazilian loan was paid off in December 2008. The Company guarantees the Walsh Environmental line of credit. The banks have reaffirmed the Company's lines of credit within the past twelve months. At January 31, 2009 and July 31, 2008 the Company had letters of credit outstanding totaling approximately $1.2 million. Borrowings by the Brazilian subsidiary for working capital were $0 and $1.0 million at January 31, 2009 and July 31, 2008, respectively. After letters of credit and loans, there was $36.6 million of line still available at January 31, 2009. 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 2009 vs 2008

Revenues for the second quarter of fiscal year 2009 were $34.1 million, an increase of $10.0 million from the $24.1 million reported for the second quarter of fiscal year 2008. Revenues from the Company's majority owned subsidiary Walsh Environmental were $9.6 million for the second quarter of fiscal year 2009, an increase of $3.1 million from the $6.5 million reported in the second quarter of fiscal year 2008. The increase in Walsh Environmental revenues was mainly attributable to increased activity in the environmental remediation and energy markets. Revenues of the parent company E&E, Inc increased $6.4 million during the second quarter of fiscal year 2009. The increase in revenue was attributable to increased work on contracts in the Company's commercial and federal government sectors. Revenues from commercial clients of E&E were $6.8 million for the second quarter of fiscal year 2009, an increase of $3.2 million from the $3.6 million reported during the second quarter of the prior year. The increase in commercial revenue was mainly attributable to an increase in work levels on contracts in the energy sector. Revenue from federal government clients of E&E were $8.7 million during the second quarter of fiscal year 2009, an increase of $3.8 million from the $4.9 million reported in the second quarter of fiscal year 2008. The increase in federal government revenue was mainly attributable to an increase in work levels on various contracts with the United States Department of Defense (DOD) and United States Environmental Protection Agency (EPA). Offsetting these increases was a decrease in work at the parent company in the state sector. Revenue from state clients of the parent company was $5.6 million during the second quarter of fiscal year 2009, a decrease of $.6 million from the $6.2 million reported in the prior year.

Revenues for the first six months of fiscal year 2009 were $67.8 million, an increase of $18.1 million from the $49.7 million reported for the prior year. Revenues from the Company's majority owned subsidiary Walsh Environmental were $17.6 million for the first six months of fiscal year 2009, an increase of $4.5 million from the $13.1 million reported in the prior year. The increase in Walsh Environmental revenues was mainly attributable to increased activity in the environmental remediation, asbestos and energy markets. Revenues of the parent company E&E, Inc were $43.7 million, an increased of $13.0 million from the $30.7 million reported for the first six months of fiscal year 2008. The increase in revenue was attributable to increased work on contracts in the Company's commercial and federal government sectors. Revenues from commercial clients of E&E were $14.6 million for the first six months of fiscal year 2009, an increase of $6.8 million from the $7.8 million reported during the prior year. The increase in commercial revenue was mainly attributable to an increase in work levels on contracts in the energy sector. Revenue from federal government clients of E&E were $16.1 million during the first six months of fiscal year 2009, an increase of $6.1 million from the $10.0 million reported in the prior year. The increase in federal government revenue was mainly attributable to an increase in work levels on various contracts with DOD and EPA.

Fiscal Year 2008 vs 2007

Revenues for the second quarter of fiscal year 2008 were consistent with the revenues reported for the prior year. Revenues from the Company's majority owned subsidiary Walsh Environmental were $6.5 million for the second quarter of fiscal year 2008, an increase of $1.0 million from the $5.5 million reported in the second quarter of fiscal year 2007. The increase in Walsh Environmental revenues was mainly attributable to increased activity in the environmental remediation and asbestos markets. Revenues from state clients of the parent company were $6.2 million, up $800,000 from the $5.4 million reported in the prior year. The increase in state revenue was mainly attributable to an increase in work levels on contracts in Florida and Washington. Offsetting these increases were decreases in work at the parent company in the commercial and federal government sectors. Revenue from commercial clients of the parent company was $3.6 million during the second quarter of fiscal year 2008, a decrease $1.0 million from the $4.6 million reported in the prior year. Revenue from federal government clients was $3.9 million during the second quarter of fiscal year 2008, a decrease $700,000 from the $4.6 million reported in the prior year. The decrease in federal government revenue was mainly due to decreased activity on United States Department of Defense contracts.

Revenue for the six months of fiscal year 2008 was $49.8 million, an increase of $1.5 million from the $48.3 million reported in the first six months of the prior year. The increase was mainly attributable to increases in work performed by state clients at the parent company and by EEI's majority owned subsidiaries Walsh Environmental and E&E do Brasil. Revenues from state clients of the parent company were $12.7 million, up $2.1 million from the $10.6 million reported in the prior year. The increase in state revenue was mainly attributable to an increase in work levels on contracts in New York and Washington. Revenues from Walsh Environmental were $13.2 million for the first six months of fiscal year 2008, an increase of 19% from the $11.1 million reported in the first six months of fiscal year 2007. The increase in Walsh Environmental revenues was mainly attributable to increased activity in the environmental remediation and asbestos markets. Revenues from E&E do Brasil were $3.2 million for the first six months of fiscal year 2008, an increase of $1.1 million or 52% over the prior year due mainly to increased work in the public and private power industries. Offsetting these increases for the first six months of fiscal year 2008 were reduced revenues in the parent company from work performed on contracts with various commercial and federal government clients. Revenue from commercial clients of the parent company were $7.8 million during the first six months of fiscal year 2008, a decrease $2.2 million from the $10.0 million reported in the prior year. Revenue from federal government clients of the parent company were $7.5 million during the first six months of fiscal year 2008, a decrease $1.1 million from the $8.6 million reported in the first six month of fiscal year 2007.

Income From Continuing Operations Before Income Taxes and Minority Interest

Fiscal Year 2009 vs 2008

The Company's income from continuing operations before income taxes and minority interest was $2.0 million for the second quarter of fiscal year 2009, an increase of $1.3 million or 186% from the $.7 million reported in the second quarter of fiscal year 2008. Gross profits increased $2.5 million during the second quarter of fiscal year 2009 as a result of the increased revenue reported at the parent company E&E, Inc. and Walsh Environmental, offset by an increase in corporate wide subcontractor costs. The increased gross profits were offset by higher indirect costs at the parent company E&E, Inc. and the Company's subsidiary E&E do Brasil. The increase in indirect costs was mainly attributable to an increase in staffing levels due to their overall business growth. For the three months ended January 31, 2009, E&E accrued additional expenses of approximately $75,000 ($.01 per share) related to the FASB Interpretation No. 48 "Uncertainty in Income Taxes" ("FIN 48") tax accrual. The majority of this expense is interest related to Kuwait taxes. E&E recorded a foreign exchange gain of $256,000 ($.04 per share after tax) to adjust the FIN 48 Kuwait tax reserve recorded by the parent company to current exchange rates. E&E do Brasil recorded an exchange loss of $385,000 ($0.05 per share after tax during the second quarter of fiscal year 2009 due to the repayment of a $1.0 million loan.

The Company's income from continuing operations before income taxes and minority interest was $5.1 million for the first six months of fiscal year 2009, an increase of $2.9 million or 132% from the $2.2 million reported in the first six months of fiscal year 2008. Gross profits increased 22% as a result of the increased revenues reported at E&E and Walsh Environmental, offset by an increase in corporate wide subcontractor costs. The increased gross profits were offset by higher indirect costs attributable to increased staffing levels and increased business development costs worldwide. E&E has experienced significant increases in labor utilization during the first six months of fiscal year 2009 due to the increased work volume. For the first six months of fiscal year 2009, E&E accrued additional expenses of approximately $156,000 ($.02 per share after tax) related to the FIN 48 tax accrual.

Fiscal Year 2008 vs 2007

The Company's income from continuing operations before income taxes and minority interest was $651,000 for the second quarter of fiscal year 2008, down 57% from the $1.5 million reported in the second quarter of fiscal year 2007. Gross profits increased slightly during the second quarter of fiscal year 2008 as a result of the increased revenue reported at Walsh Environmental and a decrease in corporate wide subcontractor costs. The increased gross profits were offset by higher indirect costs at the Company's subsidiaries Walsh Environmental and E&E do Brasil as well as increased staffing levels and business development and proposal costs worldwide within the parent company. Contract bookings for the first six months of fiscal year 2008 increased 14% over the prior year. Staff levels companywide increased as a result of anticipated manpower needs for the remainder of the fiscal year. The volume of proposals increased 51% while the value of the proposals submitted increased 83% to $172 million compared to $94 million in the prior year. Walsh Environmental reported indirect costs of $2.6 million for the second quarter of fiscal year 2008, an increase of $800,000 from the $1.8 million reported in the prior year. The increase in indirect costs was attributable to increased staffing levels and increased operational expenses related to their overall business growth. For the three months ended January 26, 2008, E&E accrued additional interest and penalties of approximately $146,000 ($.03 per share) related to the FIN 48 tax accrual. The majority of this expense is related to the Kuwait taxes. In the second quarter of fiscal year 2007, the Company sold its interest in the shrimp farm located in Costa Rica. After deducting costs of the sale, there was an after tax gain recorded on the sale of the farm of approximately $553,000 or $.13 per share and was included in discontinued operations.

The Company's income from continuing operations before income taxes and minority interest was $2.2 million for the first six months of fiscal year 2008, down 33% from the $3.3 million reported in the first six months of fiscal year 2007. Gross profits increased as a result of the increased revenues reported at Walsh Environmental and E & E do Brasil and a decrease in corporate wide subcontractor costs. The increased gross profits were offset by higher indirect costs during the first six months of fiscal year 2008. Consolidated indirect costs increased $2.6 million during the first six months of fiscal year 2008 as a result of increased marketing and bid and proposal costs and costs associated with increased staffing levels at Walsh Environmental and E&E do Brasil. Marketing and bid and proposal costs were $5.7 million for the first six months of fiscal year 2008, an increase of $801,000 from the $4.9 million reported in the prior year. For the six months ended January 26, 2008, E&E accrued additional interest and penalties of approximately $253,000 ($.04 per share) related to the FIN 48 tax accrual. The majority of this FIN 48 obligation is related to the Kuwait taxes.

Income Taxes

The estimated effective tax rate for fiscal year 2009 is 38.9%, up from the 38.0% reported for fiscal year 2008.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS 157, which established a framework for measuring fair value under generally accepted accounting principles and expands disclosure about fair value measurements. In February 2008, the FASB agreed to a one-year deferral for the implementation of SFAS No. 157 for non-financial assets and liabilities to fiscal years beginning after November 15, 2008. The current portion of SFAS 157 has been adopted for the Company's 2009 fiscal year without significant impact. The Company is currently evaluating the impact, if any, that the adoption of the deferred portion of SFAS No. 157 will have on its operating results and financial condition.

In February 2007, the FASB issued Statement No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities" (SFAS 159). The fair value option established by SFAS 159 permits entities to choose to measure eligible items at fair value at specified election dates. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings at each subsequent reporting date. SFAS 159 has been adopted for the Company's 2009 fiscal year.

In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements - An amendment of ARB No. 51." This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary, which is sometimes referred to as minority interest, is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Among other requirements, this statement requires consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the noncontrolling interest. It also requires disclosure, on the face of the consolidated income statement, of the amounts of consolidated net income attributable to the parent and to the noncontrolling interest. This Statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (that is, for the fiscal year ending July 31, 2010 for the Company). Earlier adoption is prohibited. The Company is currently assessing the effect SFAS 160 will have on its financial statements.

In December 2007, the FASB issued SFAS No. 141 R (revised 2007), "Business Combinations " (SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. This statement is effective for the Company beginning August 1, 2009 and will change the accounting for business combinations on a prospective basis. The Company is assessing the impact that the adoption of SFAS 141R may have on its financial statements.

In June 2008, the FASB issued FASB Staff Position (FSP) EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities". This FSP provides that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. This FSP is effective for the Company beginning August 1, 2009. The Company is assessing the impact that the adoption of EITF 03-6-1 may have on its financial statements.

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, 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 we enter 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 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.

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.

Changes in Corporate Entities

On September 1, 2007 Gustavson Associates LLC purchased from minority unit holder, Prospect Resources, their remaining 50 ownership units. Prospect was paid $466,708 for its units with 25% of the amount paid in cash, and the assumption of a three year note with a six percent annualized interest rate. The purchase price that was paid was at a premium over the capital value of the units. This excess created additional goodwill of $255,578 which was recorded in the first quarter of fiscal year 2008.

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.