EACO CORP

Previous wording

This Quarterly Report on Form 10-Q 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,” 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 adverse economic conditions, competitive pressures, 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 good relationships with suppliers, the willingness of lenders to extend financing commitments and the availability of capital resources, a potential health pandemic and the other risks set forth in “Risk Factors” in Part II, Item 1A of our Annual Report on Form 10-K filed with the SEC on November 29, 2024 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. 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 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 trade 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 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

EACO is a holding company primarily comprised of its wholly-owned subsidiary, Bisco. Bisco is a distributor of electronic components and fasteners with 51 sales offices and seven distribution centers located throughout the United States and Canada and 1 sales office 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.

Current wording

EACO is a holding company primarily comprised of its wholly-owned subsidiary, Bisco. Bisco is a distributor of electronic components and fasteners with 51 sales offices and seven distribution centers located throughout the United States and Canada and one sales office 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.

Previous wording

The Company’s discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires Management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

Current wording

Management’s discussion and analysis of its financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

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 the Company’s 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 purchase 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 purchase orders.

Previous wording

The Company’s inventory provisions are based upon management’s review of inventories on-hand over their expected future utilization and length of time held by the Company. The Company’s methodology for estimating these adjustments to the cost basis is evaluated for factors that could require changes to the cost basis including significant changes in product demand, market conditions, condition of the inventory or net realizable value. If business or economic conditions change, the Company’s estimates and assumptions may be adjusted as deemed appropriate.

Current wording

The Company’s inventory provisions are based upon management’s review of inventories on-hand over the inventory’s expected future utilization and length of time held by the Company. The Company’s methodology for estimating these adjustments to the cost basis is evaluated for factors that could require changes to the cost basis including significant changes in product demand, market conditions, condition of the inventory or net realizable value. If business or economic conditions change, management’s estimates and assumptions may be adjusted as deemed appropriate.

Previous wording

Management reviews 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.

Current wording

Management reviews 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 such asset’s estimated fair value.

Previous wording

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.

Current wording

On October 20, 2023, the Company completed the purchase of the Hunter Property from the Trust for $31,000,000 in cash. An appraisal, conducted in September 2023 by an independent third party, valued the Hunter Property at $31,000,000, 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 $3,900,000, which was the net book carrying value of the tenant improvements on the date the building was acquired.

Previous wording

The three months ended November 30, 2024 (“Q1 2025”) as compared to the three months ended November 30, 2023 (“Q1 2024”) increase in revenues was largely due to added sales employees during Q1 2025, increasing by 13 sales employees when comparing to Q1 2024. We believe that this increased sales headcount led to the addition of new customers and the ability to sell more products to existing customers and creating better customer relationships. Additionally, revenues for Q1 2025 have increased when compared to Q1 2024 due to higher inventory stock available and an increased demand for those products. Gross margin for Q1 2025 and Q1 2024 have stayed consistent at approximately 29.6% and 29.4%, respectively.

Current wording

The increase in revenues in the three months ended February 28, 2025 (“Q2 2025”) as compared to the three months ended February 29, 2024 (“Q2 2024”) was largely due to an increase of headcount in sales by 31 employees, from 414 sales employees to 445 sales employees for Q2 2024 and Q2 2025 respectively. Revenues for Q2 2025 have increased when compared to Q2 2024 due to higher inventory stock available and sales activity filling the demand for those products. The Company sales were also successful in capturing larger dollar customer orders during the quarter, which increased sales, but slightly lowered margins when comparing Q2 2025 to Q2 2024.

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. The increase in SG&A is primarily due to higher personnel costs related to an increase in the number of sales and administrative employees, from 577 employees in Q1 2024 to 605 employees in Q1 2025, as well as higher bonuses and commissions related to the higher sales in The Company recognized an impairment charge of $3.9 million in Q1 2024 related to the Hunter Property and termination of the Hunter Lease, which charge was not present in Q1 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 Q2 2025 increased from Q2 2024 largely due to increased employee headcount, from 584 employees at Q2 2024 to 627 employees at Q2 2025.

Previous wording

Other (Expense), Net ($ in thousands)

Current wording

Other Income (Expense), Net ($ in thousands)

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 Q1 2025, the Company recognized a net gain on trading securities of $454,000 as compared to a net loss of $44,000 in Q1 2024. The change in net trading securities in Q1 2024 was primarily due to timing of sales and purchases and general market climate for short and long positions during the 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 Q2 2025, the Company recognized a net gain on trading securities of $30,000 as compared to a net gain of $23,000 in Q2 2024. The net trading securities gains in Q2 2025 and Q2 2024 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 Q1 2025 compared to Q1 2024, which was primarily due to larger amount of interest income earned from US treasury bonds held during Q1 2024.

Current wording

Interest and other income (expense), net, decreased in Q2 2025 compared to Q2 2024, 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 2025.

Previous wording

The provision for income taxes increased by $1,744,000 in Q1 2025 over the prior year period. This decrease was due to higher taxable 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 25.8% at Q1 2024 to 25.5% at Q1 2025.

Current wording

The provision for income taxes increased by $433,000 in Q2 2025 over the same prior year period. This increase was 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 2024 and Q2 2025.

Previous wording

As of November 30, 2024 and August 31, 2024, the Company held approximately $591,000 and $843,000 of unrestricted cash and cash equivalents, respectively. The Company also held $20,521,000 and $14,748,000 of marketable securities at November 30, 2024 and August 31, 2024, respectively, which could be liquidated, if necessary.

Current wording

As of February 28, 2025 and August 31, 2024, the Company held approximately $499,000 and $843,000 of unrestricted cash and cash equivalents, respectively. The Company also held $15,081,000 and $14,748,000 of marketable securities at February 28, 2025 and August 31, 2024, respectively, which could be liquidated, if necessary.

Previous wording

The Company currently has 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

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 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 28, 2025 and August 31, 2024, the Company was in compliance with all such covenants. There was no outstanding balance on the line of credit as of each of February 28, 2025 and August 31, 2024.

Previous wording

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 entered into a settlement agreement in this litigation, which agreement is subject to court approval and won’t be payable until late in fiscal 2025. The Company expects the aggregate settlement amount to be approximately $7.5 million. The Company has accrued $7.6 million in fiscal 2024 in anticipation of this settlement and related lawyer fees. 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 fiscal 2025.

Current wording

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 entered into a settlement agreement in this litigation, which agreement is subject to court approval and will not be payable until late in fiscal 2025. The Company expects the aggregate settlement amount to be approximately $7,500,000. The Company has accrued $7,600,000 in fiscal 2024 in anticipation of this settlement and related legal fees. The Company expects to use existing cash and cash equivalents, and cash generated from operations to fund this settlement payment after the legal proceedings are completed in fiscal 2025. The court has approved the settlement agreement and is currently pending class notification and acceptance to pay out the settlement.

Previous wording

Cash provided by operating activities was $2,012,000 for the three months ended November 30, 2024 as compared with cash provided by operations of $301,000 for the three months ended November 30, 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. This was adversely impacted by an increase in inventory purchases and decrease in accrued expenses and other liabilities for the three months ended November 30, 2024. The prior period cash provided by operating activities was primarily due to net income earned in the period, impairment on termination of lease, and a reduction in operating lease right of use assets. Changes related to the impairment and operating lease right of use assets is primarily due to the termination of the Hunter Lease and the purchase of the Hunter Property.

Current wording

Cash provided used in operating activities was $1,063,000 for the six months ended February 28, 2025 as compared with cash provided by operating activities of $460,000 for the six months ended February 29, 2024. 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 28, 2025 when compared to the prior year period. The prior period cash provided by operating activities was primarily due to net income earned in the period, impairment on termination of lease, and a reduction in operating lease right of use assets. Changes related to the impairment and operating lease right of use assets is primarily due to the termination of the Hunter Lease and the purchase of the Hunter Property.

Previous wording

Cash used in investing activities was $5,691,000 for the three months ended November 30, 2024 as compared with cash used in investing activities of $8,910,000 for the three months ended November 30, 2023. Cash used in investing activities in the three months ended November 30, 2024 was primarily due to purchase of marketable securities. Cash used in investing activities in the three months ended November 30,2023 was due to the purchase of the Hunter Property in the period, partially offset by sale of marketable securities.

Current wording

Cash used in investing activities was $559,000 for the six months ended February 28, 2025 as compared with cash used in investing activities was $6,925,000 for the six months ended February 29, 2024. Cash used in investing activities in the current period is primarily due to the purchase of office equipment and furniture. Prior period cash used in investing activities was primarily was due to the purchase of the Hunter Property in the period, partially offset by sale of marketable securities.

Previous wording

Cash provided by financing activities for the three months ended November 30, 2024 was $3,461,000 as compared with cash provided by financing activities of $6,681,000 for the three months ended November 30, 2023. The cash provided in financing activities for the current period is primarily due to the change in bank overdraft, 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 is primarily due to borrowing on revolving credit facility and the change in bank overdraft.

Current wording

Cash provided by financing activities for the six months ended February 28, 2025 was $1,417,000 as compared with cash provided by financing activities of $1,977,000 for the six months ended February 29, 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 a decrease in the bank overdraft balance.