EACO CORP

August 31, 2024 and 2023

Note 1. Organization

EACO Corporation (“EACO”), incorporated in Florida in September 1985, is a holding company, primarily comprised of its wholly-owned subsidiary, Bisco Industries, Inc. (“Bisco”) and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited. Substantially all of EACO’s operations are conducted through Bisco and Bisco Industries Limited. Bisco was incorporated in Illinois in 1974 and is a distributor of electronic components and fasteners with 51 sales offices andseven distribution centers located throughout the United States and Canada and one additional sales office in Asia located in the Philippines. Bisco supplies parts used in the manufacture of products in a broad range of industries, including the aerospace, circuit board, communication, computer, fabrication, instrumentation, industrial equipment and marine industries. All references herein to “fiscal 2024” and “fiscal 2023” shall refer to the fiscal years ended August 31, 2024 and 2023, respectively.

Note 2. Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements for all periods presented include the accounts of EACO, its wholly-owned subsidiary, Bisco, and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited (all of which are collectively referred to herein as the “Company”, “we”, “us” and “our”). All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include allowance for credit losses, provision for slow moving and obsolete inventory, recoverability of the carrying value and estimated useful lives of long-lived assets, and the valuation allowance against deferred tax assets, if any. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Trade Accounts Receivable

Trade accounts receivable are carried at original invoice amount, less an estimate for an allowance for credit losses. Management determines the allowance for credit losses by identifying probable credit losses in the Company’s accounts receivable and reviewing historical data to estimate the collectability on items not yet specifically identified as problem accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received. A trade account receivable is considered past due if any portion of the receivable balance is outstanding past the customer’s credit terms. The Company does not charge interest on past due balances. The allowance for credit losses was approximately $298,000 and $245,000 at August 31, 2024 and 2023, respectively.

Inventories

Inventories consist primarily of electronic fasteners and components, and are stated at the lower of cost or estimated net realizable value. Cost is determined using the weighted average cost that approximates the first-in, first-out method. Inventories are adjusted for slow moving or obsolete items approximating $1,837,000 and $1,806,000 at August 31, 2024 and 2023, respectively. The adjustments to inventory costs are based upon management’s review of inventories on-hand over their expected future utilization and length of time held by the Company.

Property, Equipment, and Leasehold Improvements

Property, equipment, and leasehold improvements are stated at cost net of accumulated depreciation and amortization. Depreciation and amortization expense is determined using the straight-line method over the estimated useful lives of the assets. The depreciable life for buildings isthirty-five years andfive toseven years for furniture, fixtures and equipment. Leasehold improvements are amortized over the estimated useful life of the asset or the remaining lease term, whichever is less. Maintenance and repairs are charged to expense as incurred. Renewals and improvements of a major nature are capitalized. At the time of retirement or disposition of the asset, the cost and accumulated depreciation or amortization are removed from the accounts and any gains or losses are reflected in earnings.

Impairment of Long Lived Assets

The Company’s policy is to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purpose of the impairment review, assets are tested on an individual basis. The recoverability of the assets is measured by a comparison of the carrying value of each asset to the future net undiscounted cash flows expected to be generated by such assets. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds their estimated fair value.

On October 20, 2023, the Company completed the purchase of its corporate headquarters located at 5065 East Hunter Avenue in Anaheim, California (the “Hunter Property”) from the Glen F. Ceiley and Barbara A. Ceiley Revocable Trust (the “Trust”) for $31,000,000 in cash. An appraisal, conducted in September 2023 by an independent third party, valued the Hunter Property at $31 million, which was inclusive of tenant improvements previously purchased and recorded by the Company. Upon completion of the Hunter Property purchase and the termination of the Hunter Lease during the first quarter of fiscal 2024, the Company recorded an asset impairment of $3.9 million, which was the net book carrying value of the tenant improvements at the date the building was acquired.

Marketable Trading Securities

The Company invests in marketable trading securities, which include long and short positions in equity securities. Short positions represent securities sold, but not yet purchased. Short sales result in obligations to purchase securities at a later date and are separately presented as a liability in the Company’s consolidated balance sheets. As of August 31, 2024 and 2023, the Company’s total obligation for securities sold, but not yet purchased waszero. Restricted cash to collateralize the Company’s obligations for short sales waszero at August 31, 2024 and 2023.

These securities are stated at fair value, which is determined using the quoted closing prices at each reporting date. Realized gains and losses on investment transactions are recognized as incurred in the consolidated statements of operations. Net unrealized gains and losses are reported in the statements of operations and represent the change in the market value of investment holdings during the period. See Note 10.

Revenue Recognition

The Company derives its revenue primarily from product sales. Revenue recognition is determined through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, performance obligations are satisfied.

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

Freight revenue associated with product sales are recognized at point of shipment and when the criteria discussed above have been met. Freight revenues have represented less than 1% of total revenues for fiscal 2024 and fiscal 2023.

Income Taxes

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine DTAs and DTLs on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on DTAs and DTLs is recognized in income in the period that includes the enactment date.

We recognize DTAs to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, carryback potential if permitted under the tax law, and results of recent operations. If we determine that we would not be able to realize our DTAs in the future in excess of their net recorded amount, we would make an adjustment to the DTA through recognizing a valuation allowance, which would increase the provision for income taxes.

We record uncertain tax positions in accordance with ASC 740, Income Taxes, on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit or expense that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

We recognize interest and penalties related to the unrecognized tax benefit (“UTB”) on the income tax expense line in the accompanying consolidated statement of operations. Accrued interest and penalties are included on the related tax liability line in the consolidated balance sheet.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing DTAs. On the basis of this evaluation, as of August 31, 2024 no valuation allowance has been recorded.

We are subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of August 31, 2024, we are no longer subject to U.S. federal, state, local, Canada examinations by tax authorities for years before 2020.

Freight and Shipping/Handling

Shipping and handling expenses are included in cost of revenues and were approximately $5,530,000 and $5,510,000 for the years ended August 31, 2024 and 2023, respectively.

Advertising Costs

Advertising costs are expensed as incurred and are primarily comprised of digital and online advertising. For fiscal 2024 and fiscal 2023, the Company spent approximately $436,000 and $431,000 respectively, on advertising.

Operating Leases

The Company determines if a contractual arrangement contains a lease, for accounting purposes, at contract inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, and the current and non-current portion of operating lease liabilities in the accompanying consolidated balance sheets.

The ROU assets represent the Company’s right to control the use of a leased asset for the contractual term, and lease liabilities represent the related obligation to make lease payments arising from the contractual arrangement. Operating lease ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the contractual term. The operating lease ROU assets also include any prepaid lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the contractual term.

Many of the Company’s leases include both lease (such as fixed payment amounts including rent, taxes, and insurance costs) and nonlease components (such as common-area or other maintenance costs) which are accounted for as a single lease component as the Company has elected the practical expedient to group lease and nonlease components for all leases.

Many leases include one or more options to renew the contract. Therefore, renewals to extend the lease terms are not included in our ROU assets and lease liabilities as they are not reasonably certain to be exercised. We regularly evaluate the renewal options each reporting period and when they are reasonably certain to be exercised, management will include the lease renewal period in our contractual term when estimating the ROU assets and related liabilities.

Since most of the Company’s leases do not provide an implicit rate, as defined by GAAP, we use an incremental borrowing rate based on information available to us at the lease commencement date in order to determine the present value of the lease payments. The Company applies a portfolio approach for determining the incremental borrowing rate. As of August 31, 2024, the Company has right of use assets of approximately$7.5 million and lease liabilities of approximately$7.6 million recorded in the consolidated balance sheet.

Earnings Per Common Share

Basic earnings per common share for the years ended August 31, 2024 and 2023 were computed based on the weighted average number of common shares outstanding. Diluted earnings per share for those periods have been computed based on the weighted average number of common shares outstanding, giving effect to all potentially dilutive common shares that were outstanding during the respective periods. Potentially dilutive common shares represent 40,000 common shares issuable upon conversion of 36,000 shares of Series A convertible preferred stock, which were outstanding at August 31, 2024 and 2023. Such securities are included with the weighted average shares outstanding used to calculate diluted earnings per common share for the years ended August 31, 2024 and 2023.

Foreign Currency Translation and Transactions

Assets and liabilities recorded in functional currencies other than the U.S. dollar (specifically, Canadian dollars used to record the assets and liabilities for Bisco Industries limited) are translated into U.S. dollars at the period-end rate of exchange. The exchange rate for Canadian dollars at August 31, 2024 and 2023 was $0.74 for both periods. The resulting balance sheet translation adjustments are charged or credited directly to accumulated other comprehensive income. Revenue and expenses are transacted at the average exchange rates for the years ended August 31, 2024 and 2023. The average exchange rate for the years ended August 31, 2024 and 2023 was $0.74 for both periods. The percentage of total assets held outside the United States, in Canada, was 3% as of August 31, 2024 and 2023. All foreign sales, excluding Canadian sales, are denominated in U.S. dollars and, therefore, are not subject to foreign currency risk exposure.

Concentrations

Financial instruments that subject the Company to credit risk include cash balances in excess of federal depository insurance limits and accounts receivable. Cash accounts maintained by the Company at U.S. and Canadian financial institutions are insured by the Federal Deposit Insurance Corporation and Canadian Deposit Insurance Corporation, respectively. A portion of the Company’s cash was held by its Canadian subsidiary. The Company has not experienced any losses in such accounts.

Net sales to customers outside the United States and related trade accounts receivable were both approximately 11% at August 31, 2024, and 11% and 14%, respectively at August 31, 2023. No single customer accounted for more than 10% of total revenues for either of the years ended August 31, 2024 or 2023. In addition, no single customer’s receivable balance accounted for more than 10% of the Company’s customer receivables as of either August 31, 2024 or 2023.

The following table presents our sales within geographic regions as a percentage of net revenue, which is based on the “bill-to” location of our customers:

Estimated Fair Value of Financial Instruments and Certain Nonfinancial Assets and Liabilities

The Company’s financial instruments other than its marketable securities include cash and cash equivalents, trade accounts receivable, prepaid expenses, security deposits, trade accounts payable, line of credit, accrued expenses and long-term debt. Management believes that the fair value of these financial instruments approximate their carrying amounts based on their relatively short-term nature and current market indicators, such as prevailing interest rates. The Company’s marketable securities are measured at fair value on a recurring basis. See Note 10.

During the years ended August 31, 2024 and 2023, the Company did not have any nonfinancial assets or liabilities that were measured at estimated fair value on a recurring or nonrecurring basis.

Significant Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016 - 13, “Financial Instruments – Credit Losses”, which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance is effective, as amended for smaller reporting companies for all periods beginning after December 15, 2022, including interim periods within those fiscal years. Management has evaluated and implemented this standard, effective 9/1/2023, and had no material impact on its results of operations or financial position.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,” which is intended to enhance transparency into the nature and function of expenses. The amendments require that on an annual and interim basis, entities disclose disaggregated operating expense information about specific categories, including purchases of inventory, employee compensation, depreciation, amortization and depletion. This guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Upon adoption, ASU 2024-03 should be applied on a prospective basis while retrospective application is permitted. We are currently evaluating the impact ASU 2024-03 will have on our financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures,” which is intended to enhance the transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The amendments require that on an annual basis, entities disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. In addition, the amendments require that entities disclose additional information about income taxes paid as well as additional disclosures of pretax income and income tax expense, and remove the requirement to disclose certain items that are no longer considered cost beneficial or relevant. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. Upon adoption, ASU 2023-09 should be applied on a prospective basis while retrospective application is permitted.

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures,” which is intended to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. In addition, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities with a single reportable segment and contain other disclosure requirements. The Company expects to adopt the new annual disclosures as required for fiscal year ended August 31, 2025 (“fiscal 2025”) and the interim disclosures as required beginning subsequent to fiscal 2025.

Other recently issued accounting pronouncements are not expected to have a material impact on the Company’s consolidated financial statements.

Note 3. Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are summarized as follows:

On October 20, 2023, the Company purchased the Hunter Property from the Trust for a purchase price of $31,000,000. See Note 9.

For the years ended August 31, 2024 and 2023, depreciation and amortization expense was $1,685,000 and $1,398,000, respectively.

Note 4. Debt

The Company has a $20.0 million line of credit agreement with Citizens Business Bank (“the Bank”). On May 10, 2024, the Company executed a Change in Terms Agreement dated as of April 12, 2024 (the “Amendment”) with the Bank to modify terms of that certain Business Loan Agreement dated as of November 5, 2022 between Bisco and the Bank. The Amendment (i) extends the expiration date of the line of credit under the Loan Agreement to February 15, 2026; and (ii) increases the principal loan amount under the line of credit to $20 million.

The line of credit has a variable interest rate set at the bank prime index rate, but provided that in no event would such interest rate be less than 3.5% perannum. Borrowings are secured by substantially all of the assets of the Company and its subsidiaries. The amount outstanding under this line of credit as of each of August 31, 2024 and August 31, 2023 waszero. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of each of August 31, 2024 and August 31, 2023, the Company was in compliance with all such covenants.

The Company also entered into the Construction Loan 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 $5,000,000 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 and converted to a term loan was $4,807,000. Interest on the Construction Loan is payable monthly (4.35% at August 31, 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 August 31, 2024 and August 31, 2023 was $4,343,000 and $4,468,000, respectively. The Construction loan future principal due until maturity by fiscal year is as follows:

The Company has also entered into a business loan agreement (and related $100,000 promissory note) with the Bank in order to obtain a $100,000 letter of credit as security for the Company’s worker’s compensation requirements.

Note 5. Shareholders’ Equity

Earnings Per Common Share (“EPS”)

The following is a reconciliation of the numerators and denominators used in the basic and diluted computations of earnings per common share:

For the years ended August 31, 2024 and 2023,40,000 potential common shares (issuable upon conversion of 36,000 shares of the Company’s Series A cumulative convertible preferred stock) are included in the computation of diluted earnings per share.

Preferred Stock

The Company’s Board of Directors is authorized to establish the various rights and preferences for the Company’s preferred stock, including voting, conversion, dividend and liquidation rights and preferences, at the time shares of preferred stock are issued. In September 2004, the Company sold 36,000 shares of its Series A cumulative convertible preferred stock (the “Preferred Stock”) to the Company’s CEO, with an 8.5% dividend rate at a price of $25 per share for a total cash purchase price of $900,000. The holder of the Preferred Stock has the right at any time to convert the Preferred Stock and accrued but unpaid dividends into shares of the Company’s common stock at the conversion price of $22.50 per share. In the event of a liquidation or dissolution of the Company, the holder of the Preferred Stock is entitled to be paid out of the assets of the Company available for distribution to shareholders at$25.00 per share plus all unpaid dividends before any payments are made to the holders of common stock.

Note 6. Profit Sharing Plan

The Company has a defined contribution 401(k) profit sharing plan (“401(k) plan”) for all eligible employees. Employees are eligible to contribute to the 401(k) plan after six months of employment. Under the 401(k) plan, employees may contribute up to 15% of their compensation. The Company has the discretion to match 50% of the employee contributions up to 6% of employees’ compensation. The Company’s contributions are subject to afive-year vesting period beginning the second year of service. The Company’s contribution expense was approximately $925,000 and $851,000 for the years ended August 31, 2024 and 2023, respectively.

Note 7. Income Taxes

The following summarizes the Company’s provision for income taxes on income from operations:

Income taxes for the years ended August 31, 2024 and 2023 differ from the amounts computed by applying the federal blended and statutory corporate rates of 21% for both 2024 and 2023 to the pre-tax income. The differences are reconciled as follows:

The components of deferred taxes at August 31, 2024 and 2023 are summarized below:

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing DTA. On the basis of this evaluation, as of August 31, 2024, no valuation allowance has been recorded.

We are subject to taxation in the United States and various states and foreign jurisdictions. With few exceptions, as of August 31, 2024, we are no longer subject to U.S. federal, state, local, Canadian examinations by tax authorities for years before 2020.

Note 8. Commitments and Contingencies

Legal Matters

From time to time, the Company may be subject to legal proceedings and claims which arise in the normal course of our business. Any such matters and disputes could be costly and time consuming, subject the Company to damages or equitable remedies, and divert management and key personnel from core business operations.

In January 2023, a class action lawsuit was filed with the Los Angeles County Superior Court against Bisco, alleging wage and hour violations and related claims. The class action covers a class of former and current employees of Bisco who were employed between January 13, 2019 and the present time. In March 2023, Plaintiff filed a First Amended Complaint that added claims under the California Private Attorneys General Act (“PAGA”). Both parties requested to stay the litigation pending mediation, which mediation commenced in April 2024. As a result of the mediation, the parties agreed in principle to settle this matter for approximately $7.5 million. The settlement agreement is subject to court approval. The Company accrued $7.6 million in fiscal 2024 in anticipation of this settlement and the related legal fees.

Operating Lease Obligations

The Company leases its facilities and automobiles under operating lease agreements (one leased facility is leased from the Trust, which is beneficially owned by the Company’s Chief Executive Officer, Chairman of the Board and majority shareholder – see Note 9), which expire on various dates through September 2029 and require minimum rental payments ranging from $1,000 to $28,000 per month. Certain of the leases contain options for renewal under varying terms.

On October 20, 2023, The Company purchased the Hunter Property from the Trust for a purchase price of $31,000,000. See Note 2 for further explanation.

Minimum future rental payments under operating leases are as follows:

Operating lease cost under these leases was approximately $2,987,000 and $3,531,000 for fiscal years ended August 31, 2024 and 2023, respectively.

Other information related to operating leases is as follows:

The discount rate used on the operating right-of-use assets represented the Company’s incremental borrowing rate at lease inception.

Note 9. Related Party Transactions

The Company leases its Chicago area sales office and distribution center located in Glendale Heights, Illinois under an operating lease agreement (the “Glendale Lease”) from the Trust, which is the grantor trust of Glen Ceiley, the Company’s Chief Executive Officer,

Chairman of the Board, and majority shareholder. The Glendale Lease is aten - year lease with an initial monthly rental rate of $22,600, which is subject to annual rent increases of approximately 2.5% as set forth in the Glendale Lease. During the twelve months ended August 31, 2024 and 2023, the Company had cash payments related to the Glendale Lease of approximately $313,000 and $305,000, respectively.

On July 26, 2019, the Company entered into a Commercial Lease Agreement with the Trust (the “Hunter Lease”), for the lease of the Hunter Property, which houses the Company’s corporate headquarters. The Company completed its move to the headquarters located at the Hunter Property in March 2020. The term of the Hunter Lease commenced on September 2, 2019 and ended on October 20, 2023, when the Company purchased the Hunter Property. The Hunter Lease had an initial monthly rental rate of $66,300, which was subject to annual rent increases of approximately 2.5% as was set forth in the Hunter Lease. During the twelve months ended August 31, 2024 and 2023, the Company had cash payments related to the Hunter Lease of approximately $123,000 and $857,000, respectively.

On October 5, 2023, the Company entered into a Standard Purchase Agreement and Escrow Instructions (the “Purchase Agreement”) to purchase the Hunter Property for a purchase price of $31 million in cash, which closed on October 20, 2023. The Hunter Property is expected to continue to house the Company’s corporate headquarters and Anaheim distribution center for the foreseeable future. The Hunter Property was purchased with cash, funded by the Company’s available cash accounts and liquidated securities.

Note 10. Fair Value of Financial Instruments

Management estimates the fair value of its assets or liabilities measured at fair value based on the three levels of the fair-value hierarchy are described as follows:

Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. For the Company, Level 1 inputs include marketable securities and liabilities for short sales of trading securities that are actively traded.

Level 2: Inputs other than Level 1 are observable, either directly or indirectly. The Company does not hold any Level 2 financial instruments.

Level 3: Unobservable inputs. The Company does not hold any Level 3 financial instruments.

Marketable Trading Securities – The Company holds marketable trading securities, which include long and short positions that are all publicly traded securities with quoted prices in active markets. These securities are stated at fair value, which is determined using the quoted closing prices at each reporting date. Short positions represent securities sold, but not yet purchased. Short sales result in obligations to purchase securities at a later date and are separately presented as a liability in the Company’s consolidated balance sheets. The fair value of the marketable trading securities and short positions are considered to be Level 1 measurements.

The following table sets forth by level, within the fair value hierarchy, certain assets at estimated fair value as of August 31, 2024 and 2023:

Note 11. Subsequent Events

Management has evaluated events subsequent to August 31, 2024, through the date that these consolidated financial statements are being filed with the Securities and Exchange Commission, for transactions and other events that may require adjustment of and/or disclosure in such financial statements.