EACO CORP

Previous wording

The increase in revenues in the three months ended May 31, 2025 (“Q3 2025”) as compared to the three months ended May 31, 2024 (“Q3 2024”) was largely due to increased sales of our products as a result of the expansion of our sales force. We increased the number of sales personnel by 36 employees, from 399 sales employees in Q3 2024 to 435 sales employees in Q3 2025. We believe that increasing sales headcount leads to the addition of new customers and enables us to sell more products to existing customers. Revenues and gross profit for Q3 2025 also increased as compared to Q3 2024 due to developing better relationships with vendors and customers, and the Company having higher inventory stock readily available in the current period.

Current wording

The increase in revenues in the three months ended November 30, 2025 (“Q1 2026”) as compared to the three months ended November 30, 2024 (“Q1 2025”) was largely due to increased sales of our products as a result of the expansion of our sales force and increasing demand from customers. We increased the number of sales personnel and sales management by 45 employees in the current period, from 326 sales employees in Q1 2025 to 471 sales employees in Q1 2026. We believe that increasing sales headcount leads to the addition of new customers and enables us to sell more products to existing customers. Revenues and gross profit for Q1 2026 also increased as compared to Q1 2025 due to the development of better relationships with vendors and customers, and higher inventory stock readily available to meet customer demand in the current period, particularly in the aerospace and defense industries. Gross profit as a percent of net sales has increased 1.4%, primarily due to the development of better relationships with our customers and vendors.

Previous wording

Selling, general and administrative expense (“SG&A”) consists primarily of payroll and related expenses for the Company’s sales and administrative staff, professional fees including accounting, legal and technology costs and expenses, and sales and marketing costs. SG&A in Q3 2025 decreased from Q3 2024 primarily due to a legal expense accrual in the amount of approximately $7,150,000 related to a pending class action lawsuit that the Company expects to settle. See Note 8 of the Notes to Consolidated Financial Statements of this Report for further explanation. SG&A in Q3 2025 also had higher employee salary expenses due to increased total employee headcount, which increased from 584 employees in Q3 2024 to 632 employees in Q3 2025.

Current wording

Selling, general and administrative expense (“SG&A”) consists primarily of payroll and related expenses for the Company’s sales and administrative staff, professional fees including accounting, legal and technology costs and expenses, and sales and marketing costs. SG&A in Q1 2026 increased from Q1 2025 primarily due to higher employee payroll expenses and benefit expenses due to increased total employee headcount, which increased from 605 employees in Q1 2025 to 658 employees in Q1 2026.

Previous wording

Other income (expense), net, primarily consists of income or loss on trading in short-term marketable equity securities of publicly-held corporations and interest related to the Company’s debt obligations. The Company’s investment strategy consists of both long and short positions, as well as utilizing options designed to improve returns. During Q3 2025, the Company recognized a net gain on trading securities of $277,000 as compared to a net loss of $24,000 in Q3 2024. The net trading securities gain in Q3 2025 and loss in Q3 2024 was primarily due to timing of sales and purchases and general market climate for short and long positions during the applicable period.

Current wording

Other income (expense), net, primarily consists of income or loss on trading in short-term marketable equity securities of publicly-held corporations and interest related to the Company’s debt obligations. The Company’s investment strategy consists of both long and short positions, as well as utilizing options designed to improve returns. During Q1 2026, the Company recognized a net gain on trading securities of $43,000 as compared to a net gain of $454,000 in Q1 2025. The net trading securities gain in Q1 2026 and Q1 2025 was primarily due to timing of sales and purchases and general market climate for short and long positions during the applicable period.

Previous wording

Interest and other expense, net, increased in Q3 2025 compared to Q3 2024, which was primarily due to interest expense from borrowings on the line of credit being slightly higher during Q3 2025 compared to Q3 2024.

Current wording

Interest and other expense, net, decreased in Q1 2026 compared to Q1 2025, which was primarily due to interest expense from borrowings on the line of credit being slightly higher during Q1 2025 as compared to Q1 2026.

Previous wording

The provision for income taxes increased by $2,800,000 in Q3 2025 over the same prior year period. This increase was primarily due to higher income in the current quarter as compared to the prior year period. The income tax provision as a percent of pre-tax income increased from 23.4% at Q3 2024 to 24.9% at Q3 2025, which was primarily due to the state tax rate mix and permanent book tax differences.

Current wording

The provision for income taxes increased by $834,000 in Q1 2026 over the same prior year period. This increase was primarily due to higher income in the current quarter as compared to the prior year period. The income tax provision as a percent of pre-tax income remained consistent at 25.5% at Q1 2025 and Q1 2026.

Previous wording

As of May 31, 2025 and August 31, 2024, the Company held approximately $7,270,000 and $843,000 of unrestricted cash and cash equivalents, respectively. The Company also held $22,100,000 and $14,700,000 of marketable securities at May 31, 2025 and August 31, 2024, respectively, which could be liquidated, if necessary.

Current wording

As of November 30, 2025 and August 31, 2025, the Company held approximately $537,000 and $728,000 of unrestricted cash and cash equivalents, respectively. The Company also held $29,719,000 and $30,375,000 of marketable securities at November 30, 2025 and August 31, 2025, respectively, which could be liquidated, if necessary.

Previous wording

The Company currently has an available $20,000,000 line of credit with the Bank. The Company entered into a Change in Terms Agreement dated April 12, 2024 with the Bank, which increased the principal loan amount under the line of credit to $20,000,000 and extended the maturity date of the line of credit from July 5, 2024 to February 15, 2026. The line of credit has a variable interest rate set at the bank prime index rate, provided that in no event would such interest rate be less than 3.5% per annum. Borrowings are secured by

Current wording

The Company currently has an available $20,000,000 line of credit with the Bank. The Company entered into a Change in Terms Agreement dated April 12, 2024 with the Bank, which increased the principal loan amount under the line of credit to $20,000,000 and extended the maturity date of the line of credit from July 5, 2024 to February 15, 2026. The Company is currently in process of extending the line of credit with the Bank and expects it to be extended during the Company’s second quarter of fiscal year 2026. The line of credit has a variable interest rate set at the bank prime index rate, provided that in no event would such interest rate be less than 3.5% per annum. Borrowings are secured by substantially all of the assets of the Company and its subsidiaries. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of each of November 30, 2025 and August 31, 2025, the Company was in compliance with all such covenants. The outstanding balance of the line of credit as of each of November 30, 2025 and August 31, 2024 was $3,000 and zero, respectively.

Previous wording

Cash provided by operating activities was $9,404,000 for the nine months ended May 31, 2025 as compared with cash provided by operating activities of $4,393,000 for the nine months ended May 31, 2024. Cash provided by operating activities in the current period was primarily due to net income earned in the period. Cash provided by operating activities was adversely impacted to some extent by increases in inventory purchases and trade accounts receivables. Increases in accounts receivables were primarily due to our sales growth within the current period. The primary driver of increased inventory purchases in the current period was due to growth in our sales backorders and restocking authorized lines to meet projected customer demand. The Company expects to see increases in our accounts receivables and inventory for the remainder of the fiscal year and in the following fiscal year due to our budgeted revenue growth. The prior period cash provided by operating activities was primarily due to the net income in that period and an increase in trade accounts payable and a decrease in operating lease right-of-use assets.

Current wording

Cash used in operating activities was $583,000 for the three months ended November 31, 2025 as compared with cash provided by operating activities of $2,013,000 for the three months ended November 30, 2024. Cash used in operating activities in the current period was primarily due to a decrease in accrued expenses and other current liabilities. The accrued expense decreases in the current period was primarily due to the payment of the class action lawsuit settlement in September 2025. See Note 8 of the Notes to Consolidated Financial Statements of this Quarterly Report for further information. The accrued expense decrease was also in part due to timing of inventory purchased in the period and payment of accrued bonuses from fiscal year 2025 paid in Q1 2026. Cash used in operating activities was adversely impacted to some extent by decreases in trade accounts receivables and increases in net income. Decreases in accounts receivables were primarily due to cyclical sales decreases typically observed in the first quarter of the Company’s fiscal year. The Company expects to see increases in our accounts receivables for the remainder of the fiscal year due to our expected revenue growth.

Previous wording

Cash used in investing activities was $7,685,000 for the nine months ended May 31, 2025 as compared with cash used in investing activities of $15,061,000 for the nine months ended May 31, 2024. Cash used in investing activities in the current period was primarily due to the purchase of marketable securities that is funded by the Company’s excess cash in the period. The Company expects to see a decrease in marketable securities in the next few months for the cash payout of the class action settlement for approximately $7,683,000, see Note 8. Prior period cash used in investing activities was primarily due to the purchase of the Hunter Property in October 2023, partially offset by net sales of marketable securities.

Current wording

Cash used in investing activities was $762,000 for the three months ended November 30, 2025 as compared with cash used in investing activities of $5,691,000 for the three months ended November 30, 2024. Cash used in investing activities in the current period was primarily due to increases in construction in progress related to the building expansion of our Company headquarters in Anaheim, California and also reflects the purchase of additional IT and office equipment in the current period. Cash used in investing activities in the prior year was primarily due to purchases of marketable securities. The Company expects to continue to use cash in investing activities due to expected purchases of marketable securities with the Company’s excess cash.

Previous wording

Cash provided by financing activities for the nine months ended May 31, 2025 was $4,715,000 as compared with cash provided by financing activities of $2,915,000 for the nine months ended May 31, 2024. The cash provided by financing activities for the current period is primarily due to the net increase in bank overdraft in the current period, which represents outstanding checks in excess of cash due to the nightly sweep feature of the cash account to the line of credit with the Bank. The cash used in financing activities for the prior period is primarily due to an increase in the bank overdraft balance. The Company expects to continue to see increases in the bank overdraft due to increased purchasing of inventory and professional services due to projected sales growth.

Current wording

Cash provided by financing activities for the three months ended November 30, 2025 was $1,162,000 as compared with cash provided by financing activities of $3,461,000 for the three months ended November 30, 2024. The cash provided by financing activities for the current period is primarily due to the net increase in bank overdraft in the current period, which represents outstanding checks in excess of cash due to the nightly sweep feature of the cash account to the line of credit with the Bank. The cash used in financing activities for the prior period is primarily due to an increase in the bank overdraft balance. The Company expects to continue to see increases in the bank overdraft due to increased purchases of inventory due to projected sales growth as well as higher professional services in the current period related to development of system upgrades.