EACO CORP
For the period ended May 31, 2024. Filed Jul 15, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
May 31, 2024 · Filed Jul 15, 2024
EACOStored price and day change unavailable
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-02-29; filed 2024-04-09.
0001410578-24-000441
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-05-31; filed 2024-07-15.
0001410578-24-001078
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 54 previous paragraphs and 52 current paragraphs.
32 unchanged; 18 reworded; 2 added; 3 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 8 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (2)
Current report
Comparison of the Nine Months Ended May 31, 2024 and 2023
Current report
In April 2024, the Company engaged in a mediation concerning a pending class action lawsuit and reached an agreement in principle to settle the lawsuit. The Company is currently negotiating a settlement agreement and expects the aggregate settlement amount to be approximately $7.5 million, which settlement agreement, when finalized, will be subject to court approval. The Company has accrued $7.2 million in the current quarter in anticipation of this settlement. The Company expects to use existing cash and cash equivalents, and cash generated from operations to fund this settlement after the legal proceedings are completed in early 2025. See Note 9 of the Notes to Consolidated Financial Statements of this Report for further information.
Removed paragraphs (3)
Previous report
Comparison of the Six Months Ended February 29, 2024 and February 28, 2023
Previous report
The Company entered into a Construction Loan with the Bank to borrow up to $5.0 million for the primary purpose of financing tenant improvements at the Hunter Property. The Construction Loan was a line of credit evidenced by a Promissory Note in the principal amount of up to $5.0 million with a maturity date of May 15, 2027. The terms of the Construction Loan provide that the Company may only request advances through July 15, 2020, and thereafter, the Construction Loan would convert to a term loan with a fixed rate of 4.6%, which is entitled to a .25% rate discount if a demand deposit account is held with the Bank. On July 15, 2020, the amount drawn on the Construction Loan was converted to a term loan in the amount of $4.807 million. Interest on the Construction Loan is payable monthly (4.35% per annum as of each of February 29, 2024 and August 31, 2023). Concurrent with the execution of this Construction Loan, Bisco entered into a commercial security agreement, dated July 12, 2019, with the Bank, pursuant to which Bisco granted the Bank a security interest in substantially all of Bisco’s personal property to secure Bisco’s obligations under the Construction Loan. The outstanding balance of the Construction Loan at February 29, 2024 and August 31, 2023 was $4.406 million and $4.468 million, respectively.
Previous report
The Company has also entered into a business loan agreement (and related $100,000 promissory note) on June 2, 2023 with the Bank in order to obtain a $100,000 letter of credit as security for the Company’s workers’ compensation requirements.
Reworded paragraphs (18)
Previous wording
In May 2014, FASB issued ASU 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606 (“ASU 2014-09”). The revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The premise of the standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Current wording
The revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The premise of the standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
Previous wording
The Company’s performance obligations consist solely of products shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products to customers at a point in time in an amount that reflects the consideration we expect to
Current wording
The Company’s performance obligations consist solely of products shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products 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 purchase orders.
Previous wording
Upon completion of the Hunter Property purchase and the termination of the Hunter Lease, the Company recorded an asset impairment of $3.9 million, which is the carrying net book value of the previously recorded tenant improvements of the Hunter Property. See Note 2 of the Notes to Consolidated Financial Statements of this Report for further explanation.
Current wording
Upon completion of the Hunter Property purchase and the termination of the Hunter Lease, the Company recorded an asset impairment of $3.9 million, which was the carrying net book value of the previously recorded tenant improvements of the Hunter Property. See Note 2 of the Notes to Consolidated Financial Statements of this Report for further explanation.
Previous wording
The increase in revenues in the three months ended February 29, 2024 (“Q2 2024”) as compared to the three months ended February 28, 2023 (“Q2 2023”) was largely due to an increased of the sales headcount by 43 employees, increasing from 370 sales employees to 413 sales employees for Q2 2023 and Q2 2024 respectively. Revenues and gross profit for Q2 2024 have increased when compared to Q2 2023 due to higher inventory stock available and sales activity filling the demand for those products.
Current wording
The increase in revenues in the three months ended May 31, 2024 (“Q3 2024”) as compared to the three months ended May 31, 2023 (“Q3 2023”) was largely due to an increased sales of our products as a result of the expansion of our sales force. We increased the number of sales personnel by 22 employees, increasing from 348 sales employees to 370 sales employees for Q3 2023 and Q3 2024, respectively. Our experience shows 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 2024 have also increased when compared to Q3 2023 due to developing better relationships with vendors and customers and having higher inventory stock readily available.
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 2024 increased from Q2 2023 largely due to increased employee headcount, increasing from 525 employees at Q2 2023 to 584 employees at Q2 2024.
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 2024 increased from Q3 2023 largely due to a legal expense accrual in the amount of approximately $7.2 million related to a pending class action lawsuit that the Company expects to settle. See Note 9 of the Notes to Consolidated Financial Statements of this Report for further explanation. SG&A also increased due to increased employee headcount, increasing from 557 employees at Q3 2023 to 584 employees at Q3 2024.
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 2024, the Company recognized a net gain on trading securities of $23,000 as compared to a net gain of $179,000 in Q2 2023. The net trading securities gains in Q2 2024 and Q2 2023 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 Q3 2024, the Company recognized a net loss on trading securities of $24,000 as compared to a net gain of $163,000 in Q3 2023. The net trading securities loss in Q3 2024 and gain in Q3 2023 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 income (expense), net, decreased in Q2 2024 compared to Q2 2023, which was primarily due to interest expense from carrying a balance on the line of credit during portion of Q2 2024 compared to a zero-balance carried during Q2 2023.
Current wording
Interest and other income (expense), net, decreased in Q3 2024 compared to Q3 2023, which was primarily due to interest expense from borrowings on the line of credit being higher during Q3 2024 compared to Q3 2023.
Previous wording
The provision for income taxes increased by $96,000 in Q2 2024 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 decreased from 25.9% at Q2 2023 to 25.5% at Q2 2024, which was primarily due to the state tax rate mix and permanent book tax differences.
Current wording
The provision for income taxes decreased by $1,410,000 in Q3 2024 over the same prior year period. This decrease was primarily due to lower income in the current quarter as compared to the prior year period. The income tax provision as a percent of pre-tax income decreased from 25.0% at Q3 2023 to 23.4% at Q3 2024, which was primarily due to the state tax rate mix and permanent book tax differences.
Previous wording
The increase in revenues and gross margins as a percent of revenues in the six months ended February 29, 2024 as compared to the six months ended February 28, 2023 was largely due to a larger amount of inventory available and increased sales employee headcount in the current period.
Current wording
The increase in revenues and gross margins as a percent of revenues in the nine months ended May 31, 2024 as compared to the nine months ended May 31, 2023 was largely due to a larger amount of inventory available and increased sales employee headcount in the current period.
Previous wording
SG&A in the six months ended February 29, 2024 increased from the same period in the prior year primarily due to an increase in the number of sales and administrative employees, from 525 employees in Q2 2023 to 584 employees in Q2 2024. During the first quarter of fiscal 2024, the Company recognized an impairment loss of $3.9 million due to the purchase of the Hunter Property and termination of the Hunter Lease. Operating expenses as a percent of revenue in the current period increased from the prior year period primarily due to the impairment loss and higher payroll expenses.
Current wording
SG&A in the nine months ended May 31, 2024 increased from the same period in the prior year primarily due to a legal expense accrual of approximately $7.2 million related to a pending class action lawsuit that the Company expects to settle. See Note 9 of the Notes to Consolidated Financial Statements of this Report for further explanation. SG&A also increased due to an increase in the number of sales and administrative employees, from 557 total employees in Q3 2023 to 584 employees in Q3 2024. During the first quarter of fiscal 2024, the Company recognized an impairment loss of $3.9 million due to the purchase of the Hunter Property and termination of the Hunter Lease. Operating expenses as a percent of revenue in the current period increased from the prior year period primarily due to the impairment loss, legal settlement accrual, and higher payroll expenses.
Previous wording
During the six months ended February 29, 2024, the Company recognized a net loss on trading securities of $21,000 as compared to a net gain of $621,000 in the same period in the prior year. The net trading securities losses and gains, as applicable, in the six months ended February 29, 2024 and February 28, 2023 were primarily due to timing of sales and purchases of investment securities and general market climate for long positions during the applicable period. Further, in the prior year period, there was a higher amount of cash invested than in the current period, which produced higher dividends in the prior period.
Current wording
During the nine months ended May 31, 2024, the Company recognized a net loss on trading securities of $45,000 as compared to a net gain of $784,000 in the same period in the prior year. The net trading securities losses and gains, as applicable, in the nine months ended May 31, 2024 and 2023 were primarily due to timing of sales and purchases of investment securities and general market climate for long positions during the applicable period. Further, in the prior year period, there was a higher amount of cash invested than in the current period, which produced higher dividends in the prior period.
Previous wording
Interest and other income (expense), net, decreased during the six months ended February 29, 2024 compared to the same period in the prior year, which was primarily due to interest expense from carrying a balance on the line of credit during a portion of the current period.
Current wording
Interest and other income (expense), net, decreased during the nine months ended May 31, 2024 compared to the same period in the prior year, which was primarily due to interest expense from carrying a balance on the line of credit during a portion of the current period.
Previous wording
The provision for income taxes decreased by $948,000 for the six months ended February 29, 2024 when compared to the prior year period. This decrease was primarily due to lower income in the current six month period as compared to the prior year period.
Current wording
The provision for income taxes decreased by $2,358,000 for the nine months ended May 31, 2024 when compared to the prior year period. This decrease was primarily due to lower taxable income in the current nine months period as compared to the prior year period.
Previous wording
As of February 29, 2024 and August 31, 2023, the Company held approximately $3.984 million and $8.558 million of unrestricted cash and cash equivalents, respectively. The Company also held $1.678 million and $27.228 million of marketable securities at February 29, 2024 and August 31, 2023, respectively, which could be liquidated, if necessary.
Current wording
As of May 31, 2024 and August 31, 2023, the Company held approximately $737,000 and $8.6 million of unrestricted cash and cash equivalents, respectively. The Company also held $9.4 million and $27.2 million of marketable securities at May 31, 2024 and August 31, 2023, respectively, which could be liquidated, if necessary.
Previous wording
As of February 29, 2024, the Company had an available $15.0 million line of credit with the Bank. The Company entered into a Change in Terms Agreement dated November 5, 2022 with the Bank, which extended the maturity date of the line of credit from November 5, 2022 to July 5, 2024. 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 February 29, 2024 and August 31, 2023, the Company was in compliance with all such covenants. The outstanding balance of the line of credit as of each of February 29, 2024 and August 31, 2023 was zero.
Current wording
As of May 31, 2024, the Company had an available $20.0 million 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 $20.0 million 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 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 May 31, 2024 and August 31, 2023, the Company was in compliance with all such covenants. The outstanding balance of the line of credit as of each of May 31, 2024 and August 31, 2023 was zero.
Previous wording
Cash provided by operating activities was $460,000 for the six months ended February 29, 2024 as compared with cash provided by operating activities of $5.938 million for the six months ended February 28, 2023. Cash provided by operating activities in the current period was primarily due to net income earned in the period and an increase in trade accounts payable. Cash provided by operating activities was adversely impacted to some extent by an increase in inventory and a decrease in accrued expenses at the six months ended February 29, 2024 when compared to the prior year period. The prior period cash provided by operating activities was primarily due to the net income in that period and a decrease in trade accounts receivable.
Current wording
Cash provided by operating activities was $4.393 million for the nine months ended May 31, 2024 as compared with cash provided by operating activities of $8.734 million for the nine months ended May 31, 2023. Cash provided by operating activities in the current period was primarily due to net income earned in the period and an increase in trade accounts payable. Cash provided by operating activities was adversely impacted to some extent by an increase in inventory and an increase in trade accounts receivable at the nine months ended May 31, 2024 when compared to the prior year period. The prior period cash provided by operating activities was primarily due to the net income in that period and a decrease in trade accounts receivable.
Previous wording
Cash used in investing activities was $6.925 million for the six months ended February 29, 2024 as compared with cash used in investing activities of $17.71 million for the six months ended February 28, 2023. Cash used in investing activities in the current period is primarily due to the purchase of the Hunter Property in October 2023, partially offset by net sales of marketable securities. Prior period cash used in investing activities was primarily due to the purchase of marketable securities.
Current wording
Cash used in investing activities was $15.061 million for the nine months ended May 31, 2024 as compared with cash used in investing activities of $24.384 million for the nine months ended May 31, 2023. Cash used in investing activities in the current period is primarily due to the purchase of the Hunter Property in October 2023, partially offset by net sales of marketable securities. Prior period cash used in investing activities was primarily due to the purchase of marketable securities.
Previous wording
Cash provided by financing activities for the six months ended February 29, 2024 was $1.977 million as compared with cash used in financing activities of $205,000 for the six months ended February 28, 2023. 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 a decrease in the bank overdraft balance.
Current wording
Cash provided by financing activities for the nine months ended May 31, 2024 was $2.915 million as compared with cash used in financing activities of $253,000 for the nine months ended May 31, 2023. 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 a decrease in the bank overdraft balance.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
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 purchase orders.