EACO CORP

Previous wording

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will” and similar words or expressions. These forward-looking statements include, but are not limited to, statements regarding our anticipated revenue, expenses, profits and capital needs. These statements are based on our current expectations, estimates, projections, and the impact of certain accounting pronouncements, and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those projected or estimated, including, but not limited to the impact of adverse economic conditions, competitive pressures, unexpected costs and losses from operations or investments, increases in costs and overhead, impact of tariffs and international conflicts, our ability to maintain an effective system of internal controls over financial reporting, potential losses from trading in securities, our ability to retain key personnel and good relationships with suppliers, the willingness of lenders to extend financing commitments and the availability of capital resources, and the other risks set forth in “Risk Factors” in Part II, Item 1A of this Quarterly Report or identified from time to time in our other filings with the SEC and in public announcements. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof or the date of any other filing with the SEC, as applicable. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by management or any other person that the objectives or plans of the Company will be achieved.

Current wording

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements can be identified by the use of terminology such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” “intend,” “may,” “plan,” “possible,” “project,” “should,” “will” and similar words or expressions. These forward-looking statements include, but are not limited to, statements regarding our anticipated revenue, expenses, profits and capital needs. These statements are based on our current expectations, estimates, projections, and the impact of certain accounting pronouncements, and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those projected or estimated, including, but not limited to the impact of adverse economic conditions, competitive pressures, the pricing and availability of our products, the impact of products offered by our competitors, unexpected costs and losses from operations or investments, increases in costs and overhead, our ability to maintain an effective system of internal controls over financial reporting, potential losses from trading in securities, our ability to retain key personnel and hire additional qualified personnel, our ability to open additional sales offices and maintain good relationships with suppliers, the willingness of lenders to extend financing commitments and the availability of capital resources, as well as the uncertainty related to international tariffs and the impact of the continuing international conflicts and the other risks set forth in “Risk Factors” in Part II, Item 1A of this Quarterly Report or identified from time to time in our other filings with the SEC and in public announcements. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof or the date of any other filing with the SEC, as applicable. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by management or any other person that the objectives or plans of the Company will be achieved.

Previous wording

The Company’s performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products, which are at shipping point pursuant to the Company’s standard terms and conditions, to customers at a point in time in an amount that reflects the consideration we expect to receive in exchange for these products. Revenue is recognized net of returns and any taxes collected from customers. We generally offer industry standard contractual terms in our sales orders.

Current wording

The Company’s performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products, which are at shipping point pursuant to the Company’s standard terms and conditions, to customers at a point in time in an amount that reflects the consideration we expect to receive in exchange for these products. Revenue is recognized net of returns and any taxes collected from customers. We offer industry standard contractual terms in our sales orders.

Previous wording

The increase in revenues in the three months ended February 28, 2026 (“Q2 2026”) as compared to the three months ended February 28, 2025 (“Q2 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 42 employees in the current period, from 440 sales employees in Q2 2025 to 482 sales employees in Q2 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 Q2 2026 also increased as compared to Q2 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 1.2%, primarily due to the development of better relationships with our customers and vendors.

Current wording

The increase in revenues in the three months ended May 31, 2026 (“Q3 2026”) as compared to the three months ended May 31, 2025 (“Q3 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 48 employees in the current period, from 443 sales employees in Q3 2025 to 491 sales employees in Q3 2026. We believe that increasing sales headcount enables us to sell more products to existing customers and provides additional resources to find new customers. Revenues and gross profit for Q3 2026 also increased as compared to Q3 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 0.6%, primarily due to the development of better relationships with our customers and vendors and high demand for products the Company has in stock. Better relationship with our vendors have enabled the Company to get better pricing for its products and access to products that are restricted to authorized distributors.

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 Q2 2026 increased from Q2 2025 primarily due to higher employee payroll expenses and benefit expenses due to increased total employee headcount, which increased from 627 employees in Q2 2025 to 674 employees in Q2 2026.

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 Q3 2026 increased from Q3 2025 primarily due to higher employee payroll and benefit expenses due to increased total employee headcount, which increased from 632 employees in Q3 2025 to 684 employees in Q3 2026. The increase in SG&A was also attributed to higher bonus expenses and annual bonus accruals related to record sales and income for the Company in the current period.

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 Q2 2026, the Company recognized a net gain on trading securities of $416,000 as compared to a net gain of $30,000 in Q2 2025. The net trading securities gains in Q2 2026 and Q2 2025 was primarily due to an increase in investments in the periods as well as the 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 Q3 2026, the Company recognized a net gain on trading securities of $251,000 as compared to a net gain of $277,000 in Q3 2025. The net trading securities change when comparing Q3 2026 and Q3 2025 was primarily due to the 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, decreased in the current period compared to the same period in the prior year, which was primarily due to interest expense from borrowings on the line of credit being slightly higher in the prior year period.

Current wording

Interest and other (expense), net, decreased in the current period compared to the same period in the prior year, which was primarily due to interest expense from borrowings on the Company’s line of credit being slightly higher in the current year period.

Previous wording

The provision for income taxes increased by $1,049,000 in Q2 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 Q2 2025 and Q2 2026.

Current wording

The provision for income taxes increased by $1,478,000 in Q3 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 increased from 24.9% at Q3 2025 to 25.5% at Q3 2026, which was primarily due to the state tax rate mix and permanent book tax differences.

Previous wording

The increase in revenues in the six months ended February 28, 2026 as compared to the six months ended February 28, 2025 was largely due to the expansion of our sales force headcount. The increase in revenues was also 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. Gross profit as a percent of net sales has increased 1.4% in the current period, primarily due to the development of better relationships with our customers and vendors.

Current wording

The increase in revenues in the nine months ended May 31, 2026 as compared to the nine months ended May 31, 2025 was largely due to the expansion of our sales force headcount. The increase in revenues was also 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. Gross profit as a percent of net sales has increased 1.1% in the current period, primarily due to the development of better relationships with our customers and vendors.

Previous wording

SG&A in the six months ended February 28, 2026 increased from the same period in the prior year primarily due to higher employee payroll expenses and benefit expenses due to increased total employee headcount in the current period.

Current wording

SG&A in the nine months ended May 31, 2026 increased from the same period in the prior year primarily due to higher employee payroll and benefit expenses and due to increased total employee headcount in the current period. SG&A also increased in the current period when compared to the same period in the prior year due to increased bonus expense and accrued annual bonuses due to higher revenues and income in the current period.

Previous wording

During the six months ended February 28, 2026, the Company recognized a net gain on trading securities of $459,000 as compared to a net gain of $484,000 in the same period in the prior year. The increase in the realized gain on marketable trading securities in the current period over the prior period was primarily due to a larger amount invested in treasury bond ETFs during the current period. The change in the unrealized (loss) gain on marketable securities in the current and prior periods was primarily due to timing of purchases and general market climate for short and long positions at the end of the applicable periods.

Current wording

During the nine months ended May 31, 2026, the Company recognized a net gain on trading securities of $710,000 as compared to a net gain of $761,000 in the same period in the prior year. The increase in the realized gain on marketable trading securities in the current period over the prior period was primarily due to a larger amount invested in treasury bond ETFs during the current period. The change in the unrealized (loss) gain on marketable securities in the current and prior periods was primarily due to timing of purchases and general market climate for short and long positions at the end of the applicable periods.

Previous wording

The provision for income taxes increased by $1,883,000 in the six months ended February 28, 2026 when compared to the same period in the prior year. This increase was primarily due to higher income in the current period as compared to the prior year period. The income tax provision as a percent of pre-tax income remained consistent at 25.5% in both periods.

Current wording

The provision for income taxes increased by $3,361,000 in the nine months ended May 31, 2026 when compared to the same period in the prior year. This increase was primarily due to higher income in the current period as compared to the prior year period. The income tax provision as a percent of pre-tax income remained consistent at 25.5% and 25.3% for the nine months ended May 31, 2026 and May 31, 2025, respectively.

Previous wording

As of February 28, 2026 and August 31, 2025, the Company held approximately $5,140,000 and $728,000 of unrestricted cash and cash equivalents, respectively. The Company also held $24,929,000 and $30,375,000 of marketable securities at February 28, 2026 and August 31, 2025, respectively, which could be liquidated, if necessary.

Current wording

As of May 31, 2026 and August 31, 2025, the Company held approximately $758,000 and $728,000 of unrestricted cash and cash equivalents, respectively. The Company also held $33,235,000 and $30,375,000 of marketable securities at May 31, 2026 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 February 15, 2026 with the Bank, which extended the maturity date of the line of credit from February 15, 2026 to February 15, 2028. 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 4.0% 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 February 28, 2026 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 February 28, 2026 and August 31, 2025 was zero in both periods.

Current wording

The Company currently has an available $20,000,000 line of credit with the Bank pursuant to the 2024 Business Loan Agreement. The Company entered into the Amendment on February 15, 2026 with the Bank, which extended the maturity date of the line of credit from February 15, 2026 to February 15, 2028. 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 4.0% per annum. Borrowings are secured by substantially all of the assets of the Company and its subsidiaries. The 2024 Business Loan Agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of each of May 31, 2026 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 May 31, 2026 and August 31, 2025 was zero.

Previous wording

Cash provided by operating activities was $890,000 for the six months ended February 28, 2026 as compared with cash used in operating activities of $1,063,000 for the six months ended February 28, 2025. Cash provided by operating activities in the current period was due to net income of $19,117,000 in the six months ended February 28, 2026 and an increase in accounts payable of $4,107,000 in the current period. The increase in accounts payable is primarily due to purchases of inventory in the current period. Increases in accounts payable is expected through the end of the current fiscal year due to our expected inventory growth. Cash provided by operating activities was adversely impacted by increases in inventory and decreases in accrued expenses and other current liabilities. The increase in inventory was primarily due to purchases of our main line inventory and expected customer demand of products. The decrease in accrued expenses and other current liabilities 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 2025 paid during the current period.

Current wording

Cash provided by operating activities was $4,532,000 for the nine months ended May 31, 2026 as compared with cash provided by operating activities of $9,404,000 for the nine months ended May 31, 2025. Cash provided by operating activities in the current period was due to net income of $32,682,000 in the nine months ended May 31, 2026 . Cash provided by operating activities was adversely impacted by increases in inventory, prepaid expenses, and accounts receivable . The increase in inventory was primarily due to purchases of our main line inventory and expected customer demand of products. The increase in prepaid expenses is due to quarterly payments of estimated income taxes for the current fiscal year . As of Q3 2026, the Company has paid $12,191,000 in estimated taxes related to the current fiscal year. The increase in accounts receivable is primarily due to the increased revenues in the current period.

Previous wording

Cash provided by investing activities was $3,762,000 for the six months ended February 28, 2026 as compared with cash used in investing activities of $559,000 for the six months ended February 28, 2025. Cash provided by investing activities in the current period was primarily due to the sale of marketable securities in the current period. Sale of marketable securities were made to provide enough cash to pay the Company’s employee annual bonuses and estimated income taxes related to our fiscal year ended August 31, 2025. The Company expects to make marketable security purchases during the remainder of the fiscal year 2026 using its excess cash provided by operating activities.

Current wording

Cash used in investing activities was $5,475,000 for the nine months ended May 31, 2026 as compared with cash used in investing activities of $7,685,000 for the nine months ended May 31, 2025. Cash used in investing activities in the current period was primarily due to the purchase of marketable securities and leasehold improvements in the current period. Purchase of marketable securities were made to invest the Company’s excess cash in the period. The Company expects to make marketable security purchases during the remainder of the fiscal year 2026 using its excess cash provided by operating activities. Purchase of leasehold improvements were made for our corporate headquarters campus expansion of the Hunter Property.

Previous wording

Cash used in financing activities for the six months ended February 28, 2026 was $298,000 as compared with cash provided by financing activities of $1,417,000 for the six months ended February 28, 2025. The cash used in financing activities for the current period was primarily due to the net decrease 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 provided by financing activities for the prior period was primarily due to an increase in the bank overdraft balance. The Company expects to see increases in the bank overdraft due to increased purchases of inventory due to projected sales growth and additional cash being moved to marketable securities.

Current wording

Cash provided by financing activities for the nine months ended May 31, 2026 was $970,000 as compared with cash provided by financing activities of $4,715,000 for the nine months ended May 31, 2025. The cash provided by financing activities for the current period was 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 provided by financing activities for the prior period was primarily due to an increase in the bank overdraft balance. The Company expects to see increases in the bank overdraft due to increased purchases of inventory due to projected sales growth and timing of cash being moved to marketable securities.