EACO CORP

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 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 sales orders.

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 2025 increased from Q2 2024 largely due to increased employee headcount, from 584 employees at Q2 2024 to 627 employees at Q2 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 Q3 2025 decreased from Q3 2024 primarily due to a legal expense accrual in the amount of approximately $7,150,000 related to a pending class action lawsuit that the Company expects to settle. See Note 8 of the Notes to Consolidated Financial Statements of this Report for further explanation. SG&A in Q3 2025 also had higher employee salary expenses due to increased total employee headcount, which increased from 584 employees in Q3 2024 to 632 employees in Q3 2025.

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 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.

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 2025, the Company recognized a net gain on trading securities of $277,000 as compared to a net loss of $24,000 in Q3 2024. The net trading securities gain in Q3 2025 and loss in Q3 2024 was primarily due to timing of sales and purchases and general market climate for short and long positions during the applicable period.

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous wording

The increase in revenues and gross margins as a percent of revenues in the six months ended February 28, 2025 as compared to the six months ended February 29, 2024 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, 2025 as compared to the nine months ended May 31, 2024 was largely due to a larger amount of inventory available and increased sales employee headcount in the current period.

Previous wording

During the first quarter of fiscal 2024, the Company recognized an impairment loss of $3,900,000 due to the purchase of the Hunter Property and termination of the Hunter Lease.

Current wording

SG&A in the nine months ended May 31, 2025 decreased from the same period in the prior year primarily due to a legal expense accrual of approximately $7,390,000 in legal expenses accrued in the period related to a pending class action lawsuit that the Company expects to settle. See Note 8 of the Notes to Consolidated Financial Statements of this Report for further explanation. Further, during the first quarter of fiscal year 2024, the Company recognized an impairment loss of $3,900,000 due to the purchase of the Hunter Property and termination of the Hunter Lease. The losses in the previously year were partially offset by an increase of employee headcount in the current period compared to the same period in the prior year. Operating expenses as a percent of revenue in the current period decreased from the prior year period primarily due to the impairment loss and legal settlement accrual in the prior year.

Previous wording

During the six months ended February 28, 2025, the Company recognized a net gain on trading securities of $484,000 as compared to a net loss of $21,000 in the same period in the prior year. The net trading securities losses and gains, as applicable, in the six months ended February 28, 2025 and February 29, 2024 were primarily due to timing of sales and purchases of investment securities and general market climate for long positions during the applicable period.

Current wording

During the nine months ended May 31, 2025, the Company recognized a net gain on trading securities of $761,000 as compared to a net loss of $45,000 in the same period in the prior year. The net trading securities losses and gains, as applicable, in the nine months ended May 31, 2025 and 2024 were primarily due to timing of sales and purchases of investment securities and general market climate for long positions during the applicable period. Further, current year period, there was a higher amount of cash invested than in the prior period, which produced higher dividends in the current period.

Previous wording

Interest and other income (expense), net, increased during the six months ended February 28, 2025 compared to the same period in the prior year, which was primarily due to interest expense from carrying a higher balance on the line of credit during a portion of the current period compared to the same period in the prior year.

Current wording

Interest and other expense, net, increased during the nine months ended May 31, 2025 compared to the same period in the prior year, which was primarily due to interest expense from carrying a higher balance on the line of credit in the current period compared to the same period in the prior year.

Previous wording

The provision for income taxes increased by $2,177,000 for the six months ended February 28, 2025 when compared to the prior year period. This increase was due to higher income in the current six month period as compared to the prior year period.

Current wording

The provision for income taxes increased by $4,977,000 for the nine months ended May 31, 2025 when compared to the prior year period. This increase was primarily due to higher taxable income in the current nine months period as compared to the prior year period.

Previous 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.

Current wording

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

Previous wording

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

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

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 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.

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 for approximately $7,500,000, which settlement amount was increased to $7,683,000 in May 2025. In July 2025, the court approved the settlement. Pursuant to the settlement agreement, as amended, the aggregate settlement payment (less the $154,000 that has already been paid) is expected to be paid by the Company within the next few months after the final order is issued in the litigation. At that time, the Company will also pay the Company’s share of the employment taxes related to the portion of the settlement amount that is payable to the Company’s employees. The Company accrued $7,390,000 and $285,000 in fiscal 2024 and fiscal 2023, respectively, in anticipation of this settlement. The Company expects to use existing cash and cash equivalents, and cash generated from operations to fund this settlement payment.

Previous 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.

Current wording

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

Previous 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.

Current wording

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

Previous 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.

Current wording

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