10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2023, or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File No. 000-14311

EACO CORPORATION

(Exact name of registrant as specified in its charter)

Florida	59-2597349
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5065 East Hunter Avenue

Anaheim, California 92807

(Address of Principal Executive Offices)

(714) 876-2490

(Registrant’s Telephone No.)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.01 Par Value

(Title of Class)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒   No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “emerging growth company”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒
Smaller reporting company	☒	Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐   No ☒

As of January 12, 2024, 4,861,590 shares of the registrant’s common stock were outstanding.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

EACO Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(in thousands, except for share and per share information)

(Unaudited)

	Three Months Ended
	November 30,
	2023		2022
Net sales	$	80,255	$	76,319
Cost of sales		56,683		54,656
Gross margin		23,572		21,663
Operating expenses:
Selling, general and administrative expenses		17,217		15,685
Impairment on termination of lease		3,906		—
Income from operations		2,449		5,978
Other (expense) income:
Net (loss) gain on trading securities		(44)		442
Interest and other expense, net		(9)		(48)
Other (expense) income, net		(53)		394
Income before income taxes		2,396		6,372
Provision for income taxes		617		1,661
Net income		1,779		4,711
Cumulative preferred stock dividend		(19)		(19)
Net income attributable to common shareholders	$	1,760	$	4,692
Basic and diluted earnings per common share:	$	0.36	$	0.97
Basic and diluted weighted average common shares outstanding		4,861,590		4,861,590

See accompanying notes to unaudited condensed consolidated financial statements.

2

EACO Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)

	Three Months Ended
	November 30,
	2023		2022
Net income	$	1,779	$	4,711
Other comprehensive (loss), net of tax:
Foreign translation (loss)		(131)		(86)
Total comprehensive income	$	1,648	$	4,625

See accompanying notes to unaudited condensed consolidated financial statements.

3

EACO Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share information)

(Unaudited)

	November 30,		August 31,
	2023		2023
ASSETS
Current Assets:
Cash and cash equivalents	$	6,499	$	8,558
Restricted cash		10		10
Trade accounts receivable, net		46,051		46,654
Inventory, net		60,256		56,270
Marketable securities, trading		4,227		27,228
Prepaid expenses and other current assets		4,148		3,843
Total current assets		121,191		142,563
Non-current Assets:
Property, equipment and leasehold improvements, net		35,519		8,041
Operating lease right-of-use assets		4,216		9,988
Other assets, net		1,760		1,652
Total assets	$	162,686	$	162,244
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable	$	26,345	$	22,505
Accrued expenses and other current liabilities		14,118		16,375
Current portion of operating lease liabilities		2,130		3,950
Current portion of debt		3,201		120
Total current liabilities		45,794		42,950
Non-current Liabilities:
Long-term debt		4,317		4,348
Operating lease liabilities		2,225		6,225
Total liabilities		52,336		53,523
Commitments and Contingencies
Shareholders’ Equity:
Convertible preferred stock, $0.01 par value per share; 10,000,000 shares authorized; 36,000 shares outstanding (liquidation value $900)		1		1
Common stock, $0.01 par value per share; 8,000,000 shares authorized; 4,861,590 shares outstanding		49		49
Additional paid-in capital		12,378		12,378
Accumulated other comprehensive income		(93)		38
Retained earnings		98,015		96,255
Total shareholders’ equity		110,350		108,721
Total liabilities and shareholders’ equity	$	162,686	$	162,244

See accompanying notes to unaudited condensed consolidated financial statements.

4

EACO Corporation and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Equity

(in thousands, except share information)

(Unaudited)

	Convertible						Additional		Accumulated Other				Total
	Preferred Stock			Common Stock			Paid-in		Comprehensive		Accumulated		Shareholders’
	Shares	Amount		Shares	Amount		Capital		(Loss) Income		Earnings		Equity
Three Months Ended November 30, 2023
Balance, August 31, 2023	36,000	$	1	4,861,590	$	49	$	12,378	$	38	$	96,255	$	108,721
Preferred dividends	—		—	—		—		—		—		(19)		(19)
Foreign translation loss	—		—	—		—		—		(131)		—		(131)
Net income	—		—	—		—		—		—		1,779		1,779
Balance, November 30, 2023	36,000	$	1	4,861,590	$	49	$	12,378	$	(93)	$	98,015	$	110,350
Three Months Ended November 30, 2022
Balance, August 31, 2022	36,000	$	1	4,861,590	$	49	$	12,378	$	174	$	75,146	$	87,748
Preferred dividends	—		—	—		—		—		—		(19)		(19)
Foreign translation loss	—		—	—		—		—		(86)		—		(86)
Net income	—		—	—		—		—		—		4,711		4,711
Balance, November 30, 2022	36,000	$	1	4,861,590	$	49	$	12,378	$	88	$	79,838	$	92,354

See accompanying notes to unaudited condensed consolidated financial statements.

5

EACO Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Three Months Ended
	November 30,
	2023		2022
Operating activities:
Net income	$	1,779	$	4,711
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		317		359
Bad debt expense		47		2
Deferred tax provision		(67)		—
Net unrealized loss (gain) on trading securities		210		(487)
Impairment on termination of lease		3,906		—
Increase (decrease) in cash from changes in
Trade accounts receivable		556		4,300
Inventory		(3,986)		(4,247)
Prepaid expenses and other assets		(346)		(272)
Operating lease right-of-use assets		5,772		(256)
Trade accounts payable		190		(407)
Accrued expenses and other current liabilities		(2,257)		(768)
Right of use liabilities		(5,820)		272
Net cash provided by operating activities		301		3,207
Investing activities:
Additions to property, equipment, and leasehold improvements		(31,701)		(86)
Proceeds (purchase) from sale of marketable securities, trading		22,791		(6,243)
Net cash used in investing activities		(8,910)		(6,329)
Financing activities:
Borrowing on revolving credit facility		3,081		—
Payments on long-term debt		(31)		(29)
Preferred stock dividend		(19)		(19)
Bank overdraft		3,650		(109)
Net cash provided by (used) in financing activities		6,681		(157)
Effect of foreign currency exchange rate changes on cash and cash equivalents		(131)		(86)
Net (decrease) in cash, cash equivalents, and restricted cash		(2,059)		(3,365)
Cash, cash equivalents, and restricted cash - beginning of period		8,568		17,396
Cash, cash equivalents, and restricted cash - end of period	$	6,509	$	14,031
Supplemental disclosures of cash flow information:
Cash paid for interest	$	296	$	51
Cash paid for income taxes	$	674	$	—

See accompanying notes to unaudited condensed consolidated financial statements.

6

EACO CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

November 30, 2023

Note 1.    Organization and Basis of Presentation

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 and seven distribution centers located throughout the United States and Canada and one additional sales office location 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.

Note 2.    Significant Accounting Policies and Significant Recent Accounting Pronouncements

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 doubtful accounts receivable, 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with GAAP for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments considered necessary in order to make the financial statements not misleading have been included.

Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations for presentation of interim financial information. Therefore, the condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended August 31, 2023 (“fiscal 2023”). The condensed consolidated balance sheet as of August 31, 2023 and related disclosures were derived from the Company’s audited consolidated financial statements as of August 31, 2023. Operating results for the three months ended November 30, 2023 are not necessarily indicative of the results that may be expected for future quarterly periods or the entire fiscal year.

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.

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.

7

Allowance for Credit Losses

We maintain an allowance for credit losses for estimated losses on our trade receivables, resulting from the inability of our customers to make payments for products sold. The allowance for credit losses is based on a variety of factors, including credit reviews, historical experience, length of time receivables are due, current economic trends and changes in customer payment behavior. We also record specific provisions for individual accounts when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial positions. The allowance for credit losses was $256,000 and $245,000 at November 30, 2023 and August 31, 2023, respectively.

Inventories, Net

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 average cost method. Inventories are adjusted for slow moving or obsolete items,which was approximately $1,838,000 and $1,806,000 at November 30, 2023 and August 31, 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.

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.

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 consolidated statements of operations and represent the change in the market value of investment holdings during the period.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of the impairment review, assets are measured by comparing the carrying amount to future net cash flows. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their estimated fair values.

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 million 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 (as defined below), the Company recorded an asset impairment of $3.9 million, which is the carrying net book value of the tenant improvements.

Income Taxes

Deferred taxes on income result from temporary differences between the reporting of income for financial statement and tax reporting purposes. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all of the deferred tax asset will not be realized. In making such determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance.

The Company provides for tax contingencies, if any, for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and timing. Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations.

8

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 performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products upon shipment 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. The Company offers industry standard contractual terms in its purchase orders.

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, the current portion of operating lease liabilities,and the 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 non-lease 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 non-lease 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. The Company regularly evaluates 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 November 30, 2023, the Company has right of use assets of approximately $4.2 million and lease liabilities of approximately $4.4 million recorded in the consolidated balance sheet. As of August 31, 2023, the Company has right of use assets of approximately $10.0 million and lease liabilities of approximately $10.2 million recorded in the consolidated balance sheet. The reduction in right of use assets and lease liabilities is due to the purchase of the Company’s corporate headquarters in October 2023.

Earnings Per Common Share

Basic earnings per common share for the three months ended November 30, 2023 and 2022 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 November 30, 2023 and 2022. Such securities are excluded from the weighted average shares outstanding used to calculate diluted earnings per common share for the quarters ended November 30, 2023 and 2022 as their inclusion would be anti-dilutive since the conversion price was greater than the average market price of the Company’s common stock during these periods.

9

Foreign Currency Translation and Transactions

Assets and liabilities recorded in functional currencies other than the U.S. dollar (Canadian dollars for Bisco’s Canadian subsidiary) are translated into U.S. dollars at the period-end rate of exchange. The exchange rate for Canadian dollars on November 30, 2023 and 2022 was $0.74 and $0.74, respectively. The resulting balance sheet translation adjustments are charged or credited directly to accumulated other comprehensive income (loss). Revenue and expenses are transacted at the average exchange rates for the three months ended November 30, 2023 and 2022. The average exchange rates for the three months ended November 30, 2023 and 2022 were $0.73 and $0.74, respectively. All foreign sales, excluding Canadian sales, are denominated in U.S. dollars and, therefore, are not subject to foreign currency risk exposure.

Concentrations

Net sales to customers outside the United States were approximately 11% and 13% of revenues for the three months ended November 30, 2023 and 2022, respectively, and related accounts receivable were approximately 12% and 11% of total accounts receivable as of November 30, 2023 and 2022, respectively. Sales to customers in Canada accounted for approximately 29% and 24% of such international sales for the three months ended November 30, 2023 and 2022, respectively. Sales to customers located within Asia accounted for approximately 41% and 48% of such international sales for the three months ended November 30, 2023 and 2022, respectively.

No single customer accounted for more than 10% of revenues for the three months ended November 30, 2023 and 2022. In addition, no single customer’s receivable balance accounted for more than 10% as of November 30, 2023 and August 31, 2023, respectively.

Significant Recent Accounting Pronouncements

In June 2016, the FASB issued 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 companies for all periods beginning after December 15, 2022, including interim periods within those fiscal years. Management has evaluated this statement and has determined that it did not have a material impact on the Company’s result of operations or financial position.

Note 3.    Accrued Liabilities

The Company’s accrued liabilities as of November 30, 2023 and August 31, 2023 are summarized as follows (in thousands):

	November 30,		August 31,
	2023		2023
Accrued expenses and other current liabilities:
Accrued accounts payable	$	1,806	$	2,090
Accrued compensation and payroll		3,727		6,410
Accrued taxes		8,585		7,875
Total Accrued expenses and other current liabilities	$	14,118	$	16,375

Note 4.    Debt

The Company currently has a $15,000,000 line of credit agreement with Citizens Business Bank (“the Bank”). During Q1 2023, the Company entered into a Change in Terms Agreement dated November 5, 2022 with the Bank (the “Amendment”), 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, but 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 amounts outstanding under this line of credit as of November 30, 2023 and August 31, 2022 were $3,081,000 and 0, respectively. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of November 30, 2023 and August 31, 2023, the Company was in compliance with all such covenants.

The Company also entered into a Loan Agreement with the Bank to borrow up to $5,000,000 (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 provided

10

that the Company could only request advances through July 15, 2020, and thereafter, the Construction Loan converted 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 $4,807,000. Interest on the Construction Loan is payable monthly (4.35% per annum at both November 30, 2022 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 November 30, 2023 and August 31, 2023 was $4,437,000 and $4,468,000, respectively.

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 worker’s compensation requirements.

Note 5.     Leases

The Company leases its facilities and automobiles under operating lease agreements (one facility is leased from the Trust, which is beneficially owned by the Company’s Chief Executive Officer, Chairman of the Board and majority shareholder), which expire on various dates through September 2027 and require minimum rental payments ranging from $1,000 to $22,600 per month. Certain of the leases contain options for renewal under varying terms.

On October 20, 2023, the Company closed escrow on the purchase of the Hunter Property from the Trust for a purchase price of $31,000,000. See Note 7 of the Notes to Consolidated Financial Statements of this Report for further explanation.

Minimum future rental payments under operating leases are as follows:

Years Ending :
2024 (remaining nine months)	$	1,876,000
2025		1,579,000
2026		817,000
2027		424,000
2028		33,000
Thereafter		—
Future minimum lease payments	$	4,729,000
Less interest		(374,000)
Present value of minimum lease payments	$	4,355,000

Operating lease cost under these leases was approximately $832,000 and $836,000 for the three months ended November 30, 2023 and 2022, respectively.

Other information related to operating leases is as follows:

	November 30,		August 31,
	2023		2023
Accrued expenses and other current liabilities	2.5 years		4.3 years
Weighted average remaining lease terms	5.33	%	4.73	%

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

11

Note 6.    Earnings per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted computations for earnings per common share (in thousands, except per share data):

	Three Months Ended
	November 30,
	2023		2022
(In thousands, except share and per share amounts)
EPS:
Net income	$	1,779	$	4,711
Less: preferred stock dividends		(19)		(19)
Net income available for common shareholders	$	1,760	$	4,692
Earnings per common share – basic and diluted	$	0.36	$	0.97

For the three months ended November 30, 2023 and 2022, 40,000 potential common shares (issuable upon conversion of 36,000 shares of the Company’s Series A Cumulative Convertible Preferred Stock) have been included in the computation of diluted earnings per share, which had no effect on basic earnings per share.

Note 7.    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 a ten 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 three months ended November 30, 2023 and 2022, the Company incurred expense related to the Glendale Lease of approximately $78,000 and $76,000, 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 ends on August 31, 2029 with an initial monthly rental rate of $66,300, which is subject to annual rent increases of approximately 2.5% as set forth in the Hunter Lease. During the three months ended November 30, 2023 and 2022, the Company incurred expense related to the Hunter Lease of approximately $123,000 and $214,000, respectively. On October 5, 2023, the Company entered into a Standard, Purchase Agreement and Escrow Instructions (the “Purchase Agreement”) for the Hunter Property for a purchase price of $31,000,000 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 8.    Income Taxes

During the three months ended November 30, 2023 and 2022, the Company recorded an income tax provision of $617,000 and $1,661,000, respectively, resulting in an effective tax rate of 25.8% and 26.1%, respectively. The provision for income taxes decreased by $1,044,000 in the three months period ended November 30, 2023 over the prior year period due to lower pre-tax income in the current period over the prior year period. The current period effective tax rate differs from the statutory rate of 21% primarily due to the state tax rates and permanent book tax differences.

Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. For the three months ended November 30, 2023 and 2022, the Company did not have a liability for any unrecognized tax benefit. The Company has elected to classify interest and penalties as a component of its income tax provision. For the three months ended November 30, 2023 and 2022, the Company did not have a liability for penalties or interest. The Company does not expect any changes to its unrecognized tax benefit for the next nine months that would materially impact its consolidated financial statements.

The Company’s tax years for 2020, 2021, and 2022 are subject to examination by the taxing authorities. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by taxing authorities for years before 2019.

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Note 9.    Commitments and Contingencies

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. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Note 10.    Subsequent Events

Management has evaluated events subsequent to November 30, 2023, through the date that these unaudited condensed consolidated financial statements are filed with the SEC, for transactions and other events which may require adjustment of and/or disclosure in such financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements

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 Covid-19, 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, 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. 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.

Overview

The condensed consolidated financial statements comprise the accounts of EACO and its wholly-owned subsidiary, Bisco, and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited.

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 location 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.

Critical Accounting Policies

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 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.

Within the context of these critical accounting policies, the Company is not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported. There have been no changes to the Company’s critical accounting policies for the three months ended November 30, 2023.

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2014-09, Revenue from Contracts with Customers, issued as a new Topic, ASC Topic 606 (“ASU 2014-09”). The new 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.

We derive our revenue primarily from product sales. We determine revenue recognition 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, we satisfy a performance obligation.

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 to customers at a point in time in an amount that reflects the consideration we expect to receive

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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.

Impairment of Long Lived Assets

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.

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.

Deferred Tax Assets

A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize their benefit, or when future deductibility is uncertain. The Company records net deferred tax assets to the extent management believes these assets will more likely than not be realized. In making such determination, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance.

Inventory

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.

Results of Operations

Comparison of the Three Months Ended November 30, 2023 and 2022

Net Sales and Gross Profit ($ in thousands)

	Three Months Ended
	November 30,						$		%
	2023			2022			Change		Change
Net sales	$	80,255		$	76,319		$	3,936	5.2	%
Cost of sales		56,683			54,656			2,027	3.7	%
Gross margin	$	23,572		$	21,663		$	1,909	8.8	%
Gross margin as a percent of revenues		29.4	%		28.3	%			1.1	%

Net sales consist primarily of sales of component parts and fasteners, but also include, to a lesser extent, kitting charges and special-order fees, as well as freight charged to customers.

The increase in net sales and gross margins in the three months ended November 30, 2023 (“Q1 2024”) as compared to the three months ended November 30, 2022 (“Q1 2023”) was largely due to higher demand for products and favorable economic conditions in the current period. Further, the increase in net sales was due to an expansion of the Company’s salesforce by 47 employees, or 13%, over the prior year period and by increasing inventory levels so products could be readily available for shipment.

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Operating Expenses ($ in thousands)

	Three Months Ended
	November 30,						$		%
	2023			2022			Change		Change
Operating expense:
Selling, general and administrative expenses	$	17,217		$	15,685		$	1,532	9.8	%
Impairment on termination of lease		3,906			—			3,906	100.0	%
Operating expenses	$	21,123		$	15,685			5,438	34.0	%
Percent of net sales		26.3	%		20.6	%			5.7	%

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 an increase in the number of sales and administrative employees, from 520 employees in Q1 2023 to 577 employees in Q1 2024. During Q1 2024, the Company recognized an impairment loss of $[3.9 million] due to purchase of the Hunter Property and termination of the Hunter Lease.

Other (Expense), Net ($ in thousands)

	Three Months Ended
	November 30,						$		%
	2023			2022			Change		Change
Other income (expense):
Net gain (loss) on trading securities	$	(44)		$	442		$	(486)	(110.0)	%
Interest and other expense, net		(9)			(48)			39	(81.0)	%
Other Income (expense), net	$	(53)		$	394		$	(447)	(113.5)	%
Percent of net sales		(4.9)	%		0.5	%			(5.4)	%

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 2024, the Company recognized a net loss on trading securities of $44,000 as compared to a net gain of $442,000 in Q1 2023. 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. In addition, other expenses increased in Q1 2024 due to an impairment loss associated with the purchase of the Hunter Property.

Interest and other (expense), net, decreased in Q1 2024 compared to Q1 2023, which was primarily due to interest income earned from US treasury bonds held during the Q1 2024.

Income Tax Provision ($ in thousands)

	Three Months Ended
	November 30,						$		%
	2023			2022			Change		Change
Income tax provision	$	617		$	1,661		$	(1,044)	(62.9)	%
Percent of pre-tax income		25.8	%		26.1	%			(0.3)	%

The provision for income taxes decreased by $1,044,000 in Q1 2024 over the prior year period. This decrease was due to lower 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 26.1% at Q1 2023 to 25.8% at Q1 2024.

Liquidity and Capital Resources

As of November 30, 2023 and August 31, 2023, the Company held approximately $6,499,000 and $8,558,000 of unrestricted cash and cash equivalents, respectively. The Company also held $4,227,000 and $27,228,000 of marketable securities at November 30, 2023 and August 31, 2023, respectively, which could be liquidated, if necessary.

As of November 30, 2023, the Company had a $15,000,000 line of credit with the Bank. The Company entered into a Change in Terms Agreement dated November 5, 2022 with the Bank (the “Amendment”), 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, but 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

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and its subsidiaries. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of November 30, 2023 and August 31, 2023, the Company was in compliance with all such covenants. The outstanding balances of the line of credit at November 30, 2023 and August 31, 2023 were $3,081,000 and $0, respectively.

The Company entered into a Construction Loan with the Bank to borrow up to $5,000,000 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% and 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 November 30, 2023 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 November 30, 2023 and August 31, 2023 was $4,437,000 and $4,468,000, respectively.

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.

On October 5, 2023, Bisco entered into the Purchase Agreement with the Trust, which is beneficially owned and controlled by Mr. Glen F. Ceiley, the Company’s Chief Executive Officer, Chairman of the Board and a major stockholder. Pursuant to the Purchase Agreement, the Trust agreed to sell the Hunter Property to Bisco for a purchase price of $31,000,000 in cash. The transaction was closed on October 20, 2023.

Cash Flows from Operating Activities

Cash provided by operating activities was $301,000 for the three months ended November 30, 2023 as compared with cash provided by operations of $3,207,000 for the three months ended November 30, 2022. Cash provided by operating activities in the current period 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. 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, 2023. The prior period cash provided by operating activities was primarily due to net income earned and a decrease in the trade accounts receivable balance in the period. This was also adversely impact to some extent by an increase in inventory purchases for the three months ended November 30, 2022.

Cash Flows from Investing Activities

Cash used in investing activities was $8,910,000 for the three months ended November 30, 2023 as compared with cash used in investing activities of $6,329,000 for the three months ended November 30, 2022. 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. The cash used in investing activities for the prior period is primarily due to purchase of marketable securities.

Cash Flows from Financing Activities

Cash provided by financing activities for the three months ended November 30, 2023 was $6,681,000 as compared with cash used in financing activities of $157,000 for the three months ended November 30, 2022. The cash provided in financing activities for the current period is primarily due to borrowing on revolving credit facility and 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 used in financing activities for the prior period is primarily due to a decrease in the bank overdraft balance.

Contractual Financial Obligations

In addition to using cash flow generated from operations, the Company finances its operations through borrowings under its line of credit. These financial obligations are recorded in accordance with accounting rules applicable to the underlying transactions, with the result being that amounts owed under debt agreements and finance leases are recorded as liabilities on the consolidated balance sheets while lease obligations recorded as operating leases are disclosed in the notes to the consolidated financial statements and management’s discussion and analysis of financial condition and results of operations in the Company’s annual report on Form 10-K for the year ended August 31, 2023 as filed with the SEC on November 22, 2023.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this item.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Our management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of November 30, 2023, pursuant to Exchange Act Rule 13a-15(b). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of November 30, 2023 because of the material weakness in internal control over financial reporting discussed below.

Notwithstanding the material weakness in internal control over financial reporting described below, our management has concluded that our consolidated financial statements included in the Quarterly Report on Form 10-Q were fairly stated in all material respects in accordance with accounting principles generally accepted in the United States of America.

Material Weakness

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management concluded that there was a material weakness in the Company’s internal control over financial reporting as of August 31, 2023, related to the Company’s internal controls over the financial statement closing process, including manual journal entries recorded in the preparation of the financial statements related to the Company’s lease accounts, and certain inventory and accrued liability accounts.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, and/or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Remediation Plan

We are in the process of developing a detailed plan for remediation of the material weakness, including developing and maintaining additional levels of review and approval. The Company has hired a third party accounting consultant and added an assistant controller to aid in implementing additional levels of review and approval. We will continue to assess the effectiveness of our remediation efforts in connection with our future assessments of the effectiveness of internal control over financial reporting and disclosure controls and procedures.

Changes in Internal Control over Financial Reporting

Except as disclosed above, there were no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the period ended November 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we 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 us to damages or equitable remedies, and divert our management and key personnel from our business operations. We currently are not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Item 1A. Risk Factors

Our business is subject to a number of risks, some of which are discussed below. The risk factors discussed in this section should be considered together with information included elsewhere in this Quarterly Report on Form 10-Q and should not be considered the only risks to which the Company is exposed. If any of the risks actually occur, our business, financial condition, or results of operations could be seriously harmed. In that event, the market price for shares of our common stock may decline, and you could lose all or part of your investment.

Company and Operational Risks

We generally do not have long-term supply agreements or guaranteed price or delivery arrangements with the majority of our suppliers.

In most cases, we have no guaranteed price or delivery arrangements with our suppliers. Consequently, we may experience inventory shortages on certain products from time to time. Furthermore, our industry occasionally experiences significant product supply shortages and customer order backlogs due to the inability of certain manufacturers to supply products as needed. We cannot assure you that our suppliers will maintain an adequate supply of products to fulfill our orders on a timely basis, at a recoverable cost, or at all, or that we will be able to obtain particular products on favorable terms or at all. Additionally, we cannot assure you that product lines currently offered by suppliers will continue to be available to us. A decline in the supply or continued availability of the products of our suppliers, or a significant increase in the price of those products, could reduce our sales, harm our reputation and negatively affect our operating results.

Our supply agreements are generally terminable at the suppliers’ discretion.

Substantially all of the agreements we have with our suppliers, including our authorized distributor agreements, are terminable with little or no notice or penalty. Suppliers that currently sell their products through us could decide to sell, or increase their sales of, their products directly or through other distributors or channels. Any termination, interruption or adverse modification of our relationship with a key supplier or a significant number of other suppliers would likely adversely affect our operating income, cash flow and future prospects.

We generally do not have long-term sales contracts with our customers.

Most of our sales are made on a purchase order basis, rather than through long-term sales contracts. As such, our customers typically do not have any obligation to purchase any products from us. A variety of conditions, both specific to each customer and generally affecting each customer’s industry, may cause customers to reduce, cancel or delay orders that were either previously made or anticipated. In addition, customers may go bankrupt or fail, or default on their payments. Significant or numerous cancellations, reductions, delays in orders by customers, losses of customers, and/or customer defaults on payment could materially adversely affect our business and revenues.

We rely on third party suppliers for most of our products, and may not be able to identify and procure relevant new products and products lines that satisfy our customers’ needs on favorable terms and prices, or at all.

We currently rely on a large number of third party suppliers for most of our products. Since we do not manufacture our products, we rely on these suppliers to provide quality products that are in demand by our customers. Our success depends in part on our ability to develop product expertise and continue to identify and provide future high quality products and product lines that complement our existing products and product lines and that respond to our customers’ needs. We may not be able to compete effectively unless we can continue to offer a broad range of high quality, reliable products that address the trends in the markets in which we compete.

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Our advertising and marketing efforts may be costly and may not achieve desired results.

We expect to continue to incur substantial expense in connection with our advertising and marketing efforts. Postage represents a significant advertising expense for us because we generally mail fliers to current and potential customers through the U.S. Postal Service. Any future increases in postal rates will increase our mailing expenses and could have a material adverse effect on our business, financial condition and results of operations. For Q1 2024 and Q1 2023, we spent $88,000 and $101,000 on advertising, respectively.

Increases in the costs of energy, shipping and raw materials used in our products could impact our cost of goods and distribution and occupancy expenses, which would result in lower operating margins.

Costs of raw materials used in our products and energy costs have been rising during the last several years, which has resulted in increased production costs for our suppliers. These suppliers typically look to pass their increased costs along to us through price increases. The shipping costs for our products have risen as well and may continue to rise. While we typically try to pass increased supplier prices and shipping costs through to our customers or to modify our activities to mitigate the impact, we may not be successful. Failure to fully pass these increased prices and costs through to our customers or to modify our activities to mitigate the impact would have an adverse effect on our operating margins and could make our products less competitive, either of which could adversely impact our margins and results of operations.

The unauthorized access to, or theft or destruction of, customer or employee personal, financial or other data or of our proprietary or confidential information that is stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues.

The protection of customer, employee and Company data is critical to us. We are subject to laws relating to information security, privacy, cashless payments, consumer credit and fraud. Additionally, an increasing number of government and industry groups have established laws and standards for the protection of personal information. The regulatory environment surrounding information security and privacy is increasingly demanding, with the frequent imposition of new and constantly changing requirements. Compliance with these requirements may result in cost increases due to necessary system changes and the development of new administrative processes. If we fail to comply with laws and regulations regarding privacy and security, we could be subject to significant fines, and become subject to investigations, litigation and the disruption of our operations.

In the ordinary course of business, we receive and maintain credit card and other personal information from our customers, employees and vendors. Customers and employees have a high expectation that we will adequately protect their personal information. Third parties may have the technology or know-how to breach the security of this customer information, and our security measures and those of our technology vendors may not effectively prohibit others from obtaining improper access to this information. We have in the past and may in the future experience security breaches in which credit and debit card and other personal information may be stolen, which could be costly and harm our reputation. We are working with a third party vendor to assist us in safeguarding our systems and protecting the personal information of our customers, employees and vendors. We are still at an early stage in this analysis and may not be able to adequately address or remedy the potential harm, which could result in the assessment against us for large remedial costs and other penalties, and could damage our reputation and adversely impact our customers.

We rely heavily on our internal information systems, which, if not properly functioning, could materially and adversely affect our business.

Our information systems have been in place for many years, and are subject to system failures as well as problems caused by human error, which could have a material adverse effect on our business. Many of our systems consist of a number of legacy or internally developed applications, which can be more difficult to upgrade to commercially available software. It may be time consuming and costly for us to retrieve data that is necessary for management to evaluate our systems of control and information flow. In the future, management may decide to convert our information systems to a single enterprise solution. Such a conversion, while it would enhance the accessibility and reliability of our data, could be expensive and would not be without risk of data loss, delay or business interruption. Maintaining and operating these systems requires continuous investments. Failure of any of these internal information systems or material difficulties in upgrading these information systems could have material adverse effects on our business and our timely compliance with our reporting obligations.

We may not be able to attract and retain key personnel.

Our future performance will depend to a significant extent upon the efforts and abilities of certain key management and other personnel, including Glen Ceiley, our Chairman and CEO, as well as other executive officers and senior management. The loss of service of one or more of our key management members could have a material adverse effect on our business.

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The competitive pressures we face could have a material adverse effect on our business.

The market for our products and services is very competitive. We compete for customers with other distributors, who sell similar or sometimes identical products, as well as with many of our suppliers. A failure to maintain and enhance our competitive position could adversely affect our business and prospects. Furthermore, our efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall profitability. Some of our competitors may have greater financial, personnel, capacity and other resources or a more extensive customer base than we do.

Inclement weather and other disruptions to the transportation network could impact our distribution system.

Our ability to provide efficient shipment of products to our customers is an integral component of our overall business strategy. Disruptions at distribution centers or shipping ports have in the past, and may in the future, affect our ability to both maintain core products in inventory and deliver products to our customers on a timely basis, which may in turn adversely affect our relationship with our customers, reputation, and our results of operations. In addition, severe weather conditions could adversely impact demand for our products in particularly hard hit regions.

Expansion Risks

Our strategy of expanding into new geographic areas could be costly and may not expand our revenues.

One of our primary growth strategies is to grow our business through the opening of sales offices in new geographic markets. This strategy requires continued investment, both financially, as well as management’s efforts to get the new offices operational. Based on our analysis of demographics in the United States, Canada, Mexico and countries within Asia, we currently estimate there is potential market opportunity in North America and Asia to support additional sales offices. We cannot guarantee that our estimates are accurate or that we will open enough offices to capitalize on the full market opportunity or that any new offices will be successful or profitable in the near future, or at all. In addition, a particular local market’s ability to support a sales office may change due to competition or local economic conditions.

We may be unable to meet our goals regarding new office openings.

Our growth, in part, is primarily dependent on our ability to attract new customers. Historically, our most effective way to attract new customers has been opening new sales offices in additional geographic regions or new markets. Given the recent economic uncertainty, we may not be able to open or grow new offices at our projected or desired rates or hire the qualified sales personnel necessary to make such new offices successful. Failure to do so could negatively impact our long-term growth and market share.

Opening sales offices in new markets presents increased risks that may prevent us from being profitable in these new locations, and/or may adversely affect our operating results.

Our new sales offices do not typically achieve operating results comparable to our existing offices until after several years of operation. The added expenses relating to payroll, occupancy, and transportation costs can impact our ability to generate earnings. Offices in new geographic areas face additional challenges to achieving profitability, and we cannot guarantee how long it will take new offices to become profitable, or that such offices will ever become profitable. In new markets, we have less familiarity with local customer preferences and customers in these markets are less familiar with our name and capabilities. Entry into new markets may also bring us into competition with new, unfamiliar competitors. These challenges associated with opening new offices in new markets may have an adverse effect on our business and operating results.

Our ability to successfully attract and retain qualified sales personnel is uncertain.

Our success depends in large part on our ability to attract, motivate, and retain a sufficient number of qualified sales employees, who understand and appreciate our strategy and culture and are able to adequately represent us to our customers. Qualified individuals of the requisite caliber and number needed to fill these positions may be in short supply in some areas, and the turnover rate in the industry is high. If we are unable to hire and retain personnel capable of consistently providing a high level of customer service, as demonstrated by their enthusiasm for our culture and product knowledge, our sales could be materially adversely affected. Additionally, competition for qualified employees could require us to pay higher wages to attract a sufficient number of employees. An inability to recruit and retain a sufficient number of qualified individuals in the future may also delay the planned openings of new offices. Any such delays, material increases in existing employee turnover rates, or increases in labor costs, could have a material adverse effect on our business, financial condition or operating results.

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Financial Risks

We have incurred significant losses in the past from trading in securities, and we may incur such losses in the future, which may also cause us to be in violation of covenants under our loan agreement.

Bisco has historically supplemented its capital resources in part from cash generated by trading in marketable domestic equity securities. Bisco’s investment strategy includes taking both long and short positions, as well as utilizing options to maximize return. This strategy can lead, and has led, to significant losses from time to time based on market conditions and trends, as well as the performance of the specific companies in which we invest. We may incur losses in future periods from such trading activities, which could materially and adversely affect our liquidity and financial condition.

In addition, unanticipated losses from our trading activities may cause Bisco to be in violation of certain covenants under its line of credit agreement with the Bank. The agreement is secured by substantially all of Bisco’s assets. The loan agreement contains covenants which require that, on a quarterly basis, Bisco’s losses from trading in securities not exceed its pre-tax operating income. We cannot assure you that unanticipated losses from our trading activities will not cause us to violate our covenants in the future or that the bank will grant a waiver for any such default or that it will not exercise its remedies, which could include the refusal to allow additional borrowings on the line of credit or the acceleration of the obligation’s maturity date and foreclosure on Bisco’s assets, with respect to any such noncompliance, which could have a material adverse effect on our business and operations.

We may not have adequate or cost-effective liquidity or capital resources.

Our ability to satisfy our cash needs depends on our ability to generate cash from operations and to access our line of credit and the capital markets, which are subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. The total outstanding on our line of credit as of November 30, 2023 was$3.1 million, which line of credit is secured by substantially all of Bisco’s assets. Further, the Company entered into a loan agreement with the Bank for approximately $4.8 million that financed the tenant improvements on the corporate headquarters. See Note 4 for further explanation. Our ability to continue to secure financing is subject to our satisfaction of certain covenants contained in such agreements. As a result of the recent economic uncertainty due to inflation and high interest rates, we may need to pursue additional debt or equity financing, which funding may not be available on acceptable or favorable terms, on a timely basis or at all. The securities that might be issued in any future equity financing may have rights, preferences, and privileges that are senior to our common stock. Our failure to obtain such funding could adversely impact our ability to execute our business plan and our financial condition and results of operations.

We are exposed to foreign currency exchange rate risk, and changes in foreign exchange rates could increase our costs to procure products and impact our foreign sales.

Because the functional currency related to our Canadian operations and certain of our foreign vendor purchases is the applicable local currency, we are exposed to foreign currency exchange rate risk arising from transactions in the normal course of business. Fluctuations in the relative strength of foreign economies and their related currencies could adversely impact our ability to procure products overseas at competitive prices and our foreign sales. Historically, our primary exchange rate exposure has been with the Canadian dollar.

Concentration of Ownership Risks

The Company’s Chairman and CEO holds substantially all of our voting stock and can control the election of directors and significant corporate actions.

Glen Ceiley, our Chairman and CEO, beneficially owns or controls approximately 96% of our outstanding voting stock. As such, Mr. Ceiley is able to exert significant influence over the outcome of almost all corporate matters, including the election of the Board of Directors and significant corporate transactions requiring a stockholder vote, such as a merger or a sale of the Company or our assets. This concentration of ownership and influence in management and board decision-making could also harm the price of our common stock by, among other things, discouraging a potential acquirer from seeking to acquire shares of our common stock (whether by making a tender offer or otherwise) or otherwise attempting to obtain control of the Company.

Due to the small amount of public float in our common stock, sales of our common stock by Glen Ceiley could cause the price of our common stock to decline, and the listing of shares of our common stock has been moved from the OTCQB to OTC Pink, which will further limit your ability to sell your shares.

There is currently no established trading market for our common stock, and the daily volume of any stock sales has generally been low. As of November 30, 2023, the number of shares held by non-affiliates of the Company was less than 160,000 shares. If Mr. Ceiley sells or seeks to sell a substantial number of his shares of our common stock in the future, the market price of our common stock could

22

decline. The perception among investors that these sales may occur could produce the same effect. Due to the limited available public float, certain investors may not be able or willing to invest in the Company’s securities, which could also impact the market price of our common stock. During Q2 2021, the Company was downgraded from the QTCQB to the OTC Pink Open Market due to not having at least 5% public float.

General Risk Factors

Changes and uncertainties in the economy have harmed and could continue to harm our operating results.

Sales of our products are affected by many factors, including, among others, general economic conditions, interest rates, inflation, liquidity in the credit markets, unemployment trends, shipping costs, geopolitical events, and other factors. Although we sell our products to customers in a broad range of industries, if economic conditions significantly weaken on a global scale it may cause some of our customers to experience a slowdown, from time to time, which may in turn have an adverse effect on our sales and operating results. Changes and uncertainties in the economy also increase the risk of uncollectible accounts receivable. The pricing we receive from suppliers may also be impacted by general economic conditions. Continued and future changes and uncertainties in the economic climate in the United States and elsewhere could have a similar negative impact on the rate and amounts of purchases by our current and potential customers, create price inflation for our products, or otherwise have a negative impact on our expenses, gross margins and revenues, and could hinder our growth.

If we fail to maintain an effective system of internal controls over financial reporting or experience material weaknesses in our system of internal controls, we may not be able to report our financial results accurately or timely or detect fraud, which could have a material adverse effect on the market price of our common stock and our business.

We have from time to time had material weaknesses in our internal controls over financial reporting due to the Company’s internal controls over the financial statement closing process, including manual journal entries recorded in the preparation of the financial statements related to the Company’s lease accounts, and certain inventory and accrued liability accounts. Although we believe we have addressed these material weaknesses, we may experience material weaknesses or significant deficiencies in the future and may fail to maintain a system of internal control over financial reporting that complies with the reporting requirements applicable to public companies in the United States. Our failure to address any deficiencies or weaknesses in our internal control over financial reporting or to properly maintain an effective system of internal control over financial reporting could impact our ability to prevent fraud or to issue our financial statements in a timely manner that presents fairly, in accordance with GAAP, our financial condition and results of operations. The existence of any such deficiencies and/or weaknesses, even if cured, may also lead to the loss of investor confidence in the reliability of our financial statements, could harm our business and negatively impact the trading price of our common stock. Such deficiencies or material weaknesses may also subject us to lawsuits, investigations and other penalties.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.    Defaults Upon Senior Securities

None.

Item 4.    Mine Safety Disclosures

Not applicable.

Item 5.   Other Information

None.

Item 6.   Exhibits

See Exhibit Index below, which is incorporated by reference herein.

23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	EACO CORPORATION
	(Registrant)
Date: January 16, 2024	/s/ Glen Ceiley
	Glen Ceiley
	Chief Executive Officer
	(Principal Executive Officer & Principal Financial Officer)
	/s/ Michael Narikawa
	Michael Narikawa
	Chief Financial Executive
	(Principal Accounting Officer)

24

EXHIBIT INDEX

No.	Exhibit
10.1	Purchase Agreement for Real Property and Escrow Instructions, dated October 5, 2023, between Bisco and the Trust (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 6, 2023).
31.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*Filed herewith.

25

EX-31.1

Exhibit 31.1

Certification

I, Glen Ceiley, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of EACO Corporation (the “registrant”).

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: January 16, 2024	/S/ GLEN CEILEY
	Glen Ceiley
	Chief Executive Officer
	(Principal Executive Officer and Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

(PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002)

In connection with the accompanying Quarterly Report on Form 10-Q of EACO Corporation (the “Company”) for the quarter ended November 30, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Glen Ceiley, the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: January 16, 2024	/S/ GLEN CEILEY
	Glen Ceiley
	Chief Executive Officer and Chief Financial Officer
	(Principal Executive Officer and Principal Financial Officer)

XML

Document And Entity Information - shares	3 Months Ended
	Nov. 30, 2023	Jan. 12, 2024
Document And Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Nov. 30, 2023
Document Transition Report	false
Entity File Number	000-14311
Entity Registrant Name	EACO CORP
Entity Incorporation, State or Country Code	FL
Entity Tax Identification Number	59-2597349
Entity Address, Address Line One	5065 East Hunter Avenue
Entity Address, City or Town	Anaheim
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92807
City Area Code	714
Local Phone Number	876-2490
Title of 12(g) Security	Common Stock, $0.01 Par Value
Trading Symbol	EACO
Entity Interactive Data Current	Yes
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		4,861,590
Entity Central Index Key	0000784539
Current Fiscal Year End Date	--08-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q1
Amendment Flag	false

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended
	Nov. 30, 2023	Nov. 30, 2022
Condensed Consolidated Statements of Income (Unaudited)
Net sales	$ 80,255,000	$ 76,319,000
Cost of sales	56,683,000	54,656,000
Gross margin	23,572,000	21,663,000
Operating expenses:
Selling, general and administrative expenses	17,217,000	15,685,000
Impairment on termination of lease	3,906,000
Income from operations	2,449,000	5,978,000
Other (expense) income:
Net (loss) gain on trading securities	(44,000)	442,000
Interest and other expense, net	(9,000)	(48,000)
Other (expense) income, net	(53,000)	394,000
Income before income taxes	2,396,000	6,372,000
Provision for income taxes	617,000	1,661,000
Net income	1,779,000	4,711,000
Cumulative preferred stock dividend	(19,000)	(19,000)
Net income attributable to common shareholders	$ 1,760,000	$ 4,692,000
Basic earnings per common share:	$ 0.36	$ 0.97
Diluted earnings per common share:	$ 0.36	$ 0.97
Basic weighted average common shares outstanding	4,861,590	4,861,590
Diluted weighted average common shares outstanding	4,861,590	4,861,590

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Nov. 30, 2023	Nov. 30, 2022
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Net Income (Loss)	$ 1,779	$ 4,711
Other comprehensive (loss), net of tax:
Foreign translation (loss)	(131)	(86)
Total comprehensive income	$ 1,648	$ 4,625

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Nov. 30, 2023	Aug. 31, 2023
Current Assets:
Cash and cash equivalents	$ 6,499	$ 8,558
Restricted cash	10	10
Trade accounts receivable, net	46,051	46,654
Inventory, net	60,256	56,270
Marketable securities, trading	4,227	27,228
Prepaid expenses and other current assets	4,148	3,843
Total current assets	121,191	142,563
Non-current Assets:
Property, equipment and leasehold improvements, net	35,519	8,041
Operating lease right-of-use assets	4,216	9,988
Other assets, net	1,760	1,652
Total assets	162,686	162,244
Current Liabilities:
Trade accounts payable	26,345	22,505
Accrued expenses and other current liabilities	14,118	16,375
Current portion of operating lease liabilities	2,130	3,950
Current portion of debt	3,201	120
Total current liabilities	45,794	42,950
Non-current Liabilities:
Long-term debt	4,317	4,348
Operating lease liabilities	2,225	6,225
Total liabilities	52,336	53,523
Commitments and Contingencies
Shareholders' Equity:
Convertible preferred stock, $0.01 par value per share; 10,000,000 shares authorized; 36,000 shares outstanding (liquidation value $900)	1	1
Common stock, $0.01 par value per share; 8,000,000 shares authorized; 4,861,590 shares outstanding	49	49
Additional paid-in capital	12,378	12,378
Accumulated other comprehensive income	(93)	38
Retained earnings	98,015	96,255
Total shareholders' equity	110,350	108,721
Total liabilities and shareholders' equity	$ 162,686	$ 162,244

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Nov. 30, 2023	Aug. 31, 2023
Condensed Consolidated Balance Sheets (Unaudited)
Convertible preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Convertible preferred stock, shares authorized	10,000,000	10,000,000
Convertible preferred stock, shares outstanding	36,000	36,000
Convertible preferred stock, liquidation value (in dollars)	$ 900	$ 900
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	8,000,000	8,000,000
Common stock, shares outstanding	4,861,590	4,861,590

XML

Condensed Consolidated Statement of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Convertible Preferred Stock	Common Stock	Additional Paid-in Capital	Accumulated Other Comprehensive Income	Accumulated Earnings	Total
Balance at the beginning at Aug. 31, 2022	$ 1	$ 49	$ 12,378	$ 174	$ 75,146	$ 87,748
Balance at the beginning (in Shares) at Aug. 31, 2022	36,000	4,861,590
Preferred dividends					(19)	(19)
Foreign translation (loss)				(86)		(86)
Net income					4,711	4,711
Balance at the end at Nov. 30, 2022	$ 1	$ 49	12,378	88	79,838	92,354
Balance at the end (in Shares) at Nov. 30, 2022	36,000	4,861,590
Balance at the beginning at Aug. 31, 2023	$ 1	$ 49	12,378	38	96,255	108,721
Balance at the beginning (in Shares) at Aug. 31, 2023	36,000	4,861,590
Preferred dividends					(19)	(19)
Foreign translation (loss)				(131)		(131)
Net income					1,779	1,779
Balance at the end at Nov. 30, 2023	$ 1	$ 49	$ 12,378	$ (93)	$ 98,015	$ 110,350
Balance at the end (in Shares) at Nov. 30, 2023	36,000	4,861,590

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Nov. 30, 2023	Nov. 30, 2022
Operating activities:
Net income	$ 1,779	$ 4,711
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	317	359
Bad debt expense	47	2
Deferred tax provision	(67)
Net unrealized loss (gain) on trading securities	210	(487)
Impairment on termination of lease	3,906
Increase (decrease) in cash from changes in
Trade accounts receivable	556	4,300
Inventory	(3,986)	(4,247)
Prepaid expenses and other assets	(346)	(272)
Operating lease right-of-use assets	5,772	(256)
Trade accounts payable	190	(407)
Accrued expenses and other current liabilities	(2,257)	(768)
Right of use liabilities	(5,820)	272
Net cash provided by operating activities	301	3,207
Investing activities:
Additions to property, equipment, and leasehold improvements	(31,701)	(86)
Proceeds (purchase) from sale of marketable securities, trading	22,791	(6,243)
Net cash used in investing activities	(8,910)	(6,329)
Financing activities:
Borrowing on revolving credit facility	3,081
Payments on long-term debt	(31)	(29)
Preferred stock dividend	(19)	(19)
Bank overdraft	3,650	(109)
Net cash provided by (used) in financing activities	6,681	(157)
Effect of foreign currency exchange rate changes on cash and cash equivalents	(131)	(86)
Net (decrease) in cash, cash equivalents, and restricted cash	(2,059)	(3,365)
Cash, cash equivalents, and restricted cash - beginning of period	8,568	17,396
Cash, cash equivalents, and restricted cash - end of period	6,509	14,031
Supplemental disclosures of cash flow information:
Cash paid for interest	296	$ 51
Cash paid for income taxes	$ 674

XML

Organization and Basis of Presentation

3 Months Ended

Nov. 30, 2023

Organization and Basis of Presentation

Organization and Basis of Presentation

Note 1.    Organization and Basis of Presentation

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 and seven distribution centers located throughout the United States and Canada and one additional sales office location 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.

XML

Significant Accounting Policies and Significant Recent Accounting Pronouncements

3 Months Ended

Nov. 30, 2023

Significant Accounting Policies and Significant Recent Accounting Pronouncements

Significant Accounting Policies and Significant Recent Accounting Pronouncements

Note 2.    Significant Accounting Policies and Significant Recent Accounting Pronouncements

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 doubtful accounts receivable, 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with GAAP for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments considered necessary in order to make the financial statements not misleading have been included.

Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations for presentation of interim financial information. Therefore, the condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended August 31, 2023 (“fiscal 2023”). The condensed consolidated balance sheet as of August 31, 2023 and related disclosures were derived from the Company’s audited consolidated financial statements as of August 31, 2023. Operating results for the three months ended November 30, 2023 are not necessarily indicative of the results that may be expected for future quarterly periods or the entire fiscal year.

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.

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.

Allowance for Credit Losses

We maintain an allowance for credit losses for estimated losses on our trade receivables, resulting from the inability of our customers to make payments for products sold. The allowance for credit losses is based on a variety of factors, including credit reviews, historical experience, length of time receivables are due, current economic trends and changes in customer payment behavior. We also record specific provisions for individual accounts when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial positions. The allowance for credit losses was $256,000 and $245,000 at November 30, 2023 and August 31, 2023, respectively.

Inventories, Net

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 average cost method. Inventories are adjusted for slow moving or obsolete items,which was approximately $1,838,000 and $1,806,000 at November 30, 2023 and August 31, 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.

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.

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 consolidated statements of operations and represent the change in the market value of investment holdings during the period.

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of the impairment review, assets are measured by comparing the carrying amount to future net cash flows. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their estimated fair values.

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 million 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 (as defined below), the Company recorded an asset impairment of $3.9 million, which is the carrying net book value of the tenant improvements.

Income Taxes

Deferred taxes on income result from temporary differences between the reporting of income for financial statement and tax reporting purposes. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all of the deferred tax asset will not be realized. In making such determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance.

The Company provides for tax contingencies, if any, for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and timing. Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations.

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 performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products upon shipment 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. The Company offers industry standard contractual terms in its purchase orders.

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, the current portion of operating lease liabilities,and the 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 non-lease 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 non-lease 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. The Company regularly evaluates 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 November 30, 2023, the Company has right of use assets of approximately $4.2 million and lease liabilities of approximately $4.4 million recorded in the consolidated balance sheet. As of August 31, 2023, the Company has right of use assets of approximately $10.0 million and lease liabilities of approximately $10.2 million recorded in the consolidated balance sheet. The reduction in right of use assets and lease liabilities is due to the purchase of the Company’s corporate headquarters in October 2023.

Earnings Per Common Share

Basic earnings per common share for the three months ended November 30, 2023 and 2022 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 November 30, 2023 and 2022. Such securities are excluded from the weighted average shares outstanding used to calculate diluted earnings per common share for the quarters ended November 30, 2023 and 2022 as their inclusion would be anti-dilutive since the conversion price was greater than the average market price of the Company’s common stock during these periods.

Foreign Currency Translation and Transactions

Assets and liabilities recorded in functional currencies other than the U.S. dollar (Canadian dollars for Bisco’s Canadian subsidiary) are translated into U.S. dollars at the period-end rate of exchange. The exchange rate for Canadian dollars on November 30, 2023 and 2022 was $0.74 and $0.74, respectively. The resulting balance sheet translation adjustments are charged or credited directly to accumulated other comprehensive income (loss). Revenue and expenses are transacted at the average exchange rates for the three months ended November 30, 2023 and 2022. The average exchange rates for the three months ended November 30, 2023 and 2022 were $0.73 and $0.74, respectively. All foreign sales, excluding Canadian sales, are denominated in U.S. dollars and, therefore, are not subject to foreign currency risk exposure.

Concentrations

Net sales to customers outside the United States were approximately 11% and 13% of revenues for the three months ended November 30, 2023 and 2022, respectively, and related accounts receivable were approximately 12% and 11% of total accounts receivable as of November 30, 2023 and 2022, respectively. Sales to customers in Canada accounted for approximately 29% and 24% of such international sales for the three months ended November 30, 2023 and 2022, respectively. Sales to customers located within Asia accounted for approximately 41% and 48% of such international sales for the three months ended November 30, 2023 and 2022, respectively.

No single customer accounted for more than 10% of revenues for the three months ended November 30, 2023 and 2022. In addition, no single customer’s receivable balance accounted for more than 10% as of November 30, 2023 and August 31, 2023, respectively.

Significant Recent Accounting Pronouncements

In June 2016, the FASB issued 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 companies for all periods beginning after December 15, 2022, including interim periods within those fiscal years. Management has evaluated this statement and has determined that it did not have a material impact on the Company’s result of operations or financial position.

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Accrued Liabilities

3 Months Ended

Nov. 30, 2023

Accrued Liabilities

Accrued Liabilities

Note 3.    Accrued Liabilities

The Company’s accrued liabilities as of November 30, 2023 and August 31, 2023 are summarized as follows (in thousands):

	November 30,		August 31,
	2023		2023
Accrued expenses and other current liabilities:
Accrued accounts payable	$	1,806	$	2,090
Accrued compensation and payroll		3,727		6,410
Accrued taxes		8,585		7,875
Total Accrued expenses and other current liabilities	$	14,118	$	16,375

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Debt

3 Months Ended

Nov. 30, 2023

Debt

Debt

Note 4.    Debt

The Company currently has a $15,000,000 line of credit agreement with Citizens Business Bank (“the Bank”). During Q1 2023, the Company entered into a Change in Terms Agreement dated November 5, 2022 with the Bank (the “Amendment”), 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, but 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 amounts outstanding under this line of credit as of November 30, 2023 and August 31, 2022 were $3,081,000 and 0, respectively. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of November 30, 2023 and August 31, 2023, the Company was in compliance with all such covenants.

The Company also entered into a Loan Agreement with the Bank to borrow up to $5,000,000 (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 provided

that the Company could only request advances through July 15, 2020, and thereafter, the Construction Loan converted 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 $4,807,000. Interest on the Construction Loan is payable monthly (4.35% per annum at both November 30, 2022 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 November 30, 2023 and August 31, 2023 was $4,437,000 and $4,468,000, respectively.

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 worker’s compensation requirements.

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Leases

3 Months Ended

Nov. 30, 2023

Leases

Leases

Note 5.     Leases

The Company leases its facilities and automobiles under operating lease agreements (one facility is leased from the Trust, which is beneficially owned by the Company’s Chief Executive Officer, Chairman of the Board and majority shareholder), which expire on various dates through September 2027 and require minimum rental payments ranging from $1,000 to $22,600 per month. Certain of the leases contain options for renewal under varying terms.

On October 20, 2023, the Company closed escrow on the purchase of the Hunter Property from the Trust for a purchase price of $31,000,000. See Note 7 of the Notes to Consolidated Financial Statements of this Report for further explanation.

Minimum future rental payments under operating leases are as follows:

Years Ending :
2024 (remaining nine months)	$	1,876,000
2025		1,579,000
2026		817,000
2027		424,000
2028		33,000
Thereafter		—
Future minimum lease payments	$	4,729,000
Less interest		(374,000)
Present value of minimum lease payments	$	4,355,000

Operating lease cost under these leases was approximately $832,000 and $836,000 for the three months ended November 30, 2023 and 2022, respectively.

Other information related to operating leases is as follows:

	November 30,		August 31,
	2023		2023
Accrued expenses and other current liabilities	2.5 years		4.3 years
Weighted average remaining lease terms	5.33	%	4.73	%

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

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Earnings per Share

3 Months Ended

Nov. 30, 2023

Earnings per Share

Earnings per Share

Note 6.    Earnings per Share

The following is a reconciliation of the numerators and denominators of the basic and diluted computations for earnings per common share (in thousands, except per share data):

	Three Months Ended
	November 30,
	2023		2022
(In thousands, except share and per share amounts)
EPS:
Net income	$	1,779	$	4,711
Less: preferred stock dividends		(19)		(19)
Net income available for common shareholders	$	1,760	$	4,692
Earnings per common share – basic and diluted	$	0.36	$	0.97

For the three months ended November 30, 2023 and 2022, 40,000 potential common shares (issuable upon conversion of 36,000 shares of the Company’s Series A Cumulative Convertible Preferred Stock) have been included in the computation of diluted earnings per share, which had no effect on basic earnings per share.

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Related Party Transactions

3 Months Ended

Nov. 30, 2023

Related Party Transactions

Related Party Transactions

Note 7.    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 a ten 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 three months ended November 30, 2023 and 2022, the Company incurred expense related to the Glendale Lease of approximately $78,000 and $76,000, 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 ends on August 31, 2029 with an initial monthly rental rate of $66,300, which is subject to annual rent increases of approximately 2.5% as set forth in the Hunter Lease. During the three months ended November 30, 2023 and 2022, the Company incurred expense related to the Hunter Lease of approximately $123,000 and $214,000, respectively. On October 5, 2023, the Company entered into a Standard, Purchase Agreement and Escrow Instructions (the “Purchase Agreement”) for the Hunter Property for a purchase price of $31,000,000 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.

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Income Taxes

3 Months Ended

Nov. 30, 2023

Income Taxes

Income Taxes

Note 8.    Income Taxes

During the three months ended November 30, 2023 and 2022, the Company recorded an income tax provision of $617,000 and $1,661,000, respectively, resulting in an effective tax rate of 25.8% and 26.1%, respectively. The provision for income taxes decreased by $1,044,000 in the three months period ended November 30, 2023 over the prior year period due to lower pre-tax income in the current period over the prior year period. The current period effective tax rate differs from the statutory rate of 21% primarily due to the state tax rates and permanent book tax differences.

Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. For the three months ended November 30, 2023 and 2022, the Company did not have a liability for any unrecognized tax benefit. The Company has elected to classify interest and penalties as a component of its income tax provision. For the three months ended November 30, 2023 and 2022, the Company did not have a liability for penalties or interest. The Company does not expect any changes to its unrecognized tax benefit for the next nine months that would materially impact its consolidated financial statements.

The Company’s tax years for 2020, 2021, and 2022 are subject to examination by the taxing authorities. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by taxing authorities for years before 2019.

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Commitments and Contingencies

3 Months Ended

Nov. 30, 2023

Commitments and Contingencies

Commitments and Contingencies

Note 9.    Commitments and Contingencies

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. The Company is currently not a party to any legal proceedings, the adverse outcome of which, in management’s opinion, individually or in the aggregate, would have a material adverse effect on our consolidated results of operations, financial position or cash flows.

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Subsequent Events

3 Months Ended

Nov. 30, 2023

Subsequent Events

Subsequent Events

Note 10.    Subsequent Events

Management has evaluated events subsequent to November 30, 2023, through the date that these unaudited condensed consolidated financial statements are filed with the SEC, for transactions and other events which may require adjustment of and/or disclosure in such financial statements.

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Significant Accounting Policies and Significant Recent Accounting Pronouncements (Policies)

3 Months Ended

Nov. 30, 2023

Significant Accounting Policies and Significant Recent Accounting Pronouncements

Use of Estimates

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 doubtful accounts receivable, 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.

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with GAAP for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments considered necessary in order to make the financial statements not misleading have been included.

Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations for presentation of interim financial information. Therefore, the condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended August 31, 2023 (“fiscal 2023”). The condensed consolidated balance sheet as of August 31, 2023 and related disclosures were derived from the Company’s audited consolidated financial statements as of August 31, 2023. Operating results for the three months ended November 30, 2023 are not necessarily indicative of the results that may be expected for future quarterly periods or the entire fiscal year.

Principles of Consolidation

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.

Cash and Cash Equivalents

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.

Allowance for Credit Losses

Allowance for Credit Losses

We maintain an allowance for credit losses for estimated losses on our trade receivables, resulting from the inability of our customers to make payments for products sold. The allowance for credit losses is based on a variety of factors, including credit reviews, historical experience, length of time receivables are due, current economic trends and changes in customer payment behavior. We also record specific provisions for individual accounts when we become aware of a customer’s inability to meet its financial obligations to us, such as in the case of bankruptcy filings or deterioration in the customer’s operating results or financial positions. The allowance for credit losses was $256,000 and $245,000 at November 30, 2023 and August 31, 2023, respectively.

Inventories, Net

Inventories, Net

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 average cost method. Inventories are adjusted for slow moving or obsolete items,which was approximately $1,838,000 and $1,806,000 at November 30, 2023 and August 31, 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.

Marketable Trading Securities

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.

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 consolidated statements of operations and represent the change in the market value of investment holdings during the period.

Long Lived Assets

Long-Lived Assets

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of the impairment review, assets are measured by comparing the carrying amount to future net cash flows. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their estimated fair values.

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 million 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 (as defined below), the Company recorded an asset impairment of $3.9 million, which is the carrying net book value of the tenant improvements.

Income Taxes

Income Taxes

Deferred taxes on income result from temporary differences between the reporting of income for financial statement and tax reporting purposes. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all of the deferred tax asset will not be realized. In making such determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance.

The Company provides for tax contingencies, if any, for federal, state, local and international exposures relating to audit results, tax planning initiatives and compliance responsibilities. The development of these reserves requires judgments about tax issues, potential outcomes and timing. Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations.

Revenue Recognition

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 performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products upon shipment 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. The Company offers industry standard contractual terms in its purchase orders.

Operating Leases

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, the current portion of operating lease liabilities,and the 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 non-lease 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 non-lease 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. The Company regularly evaluates 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 November 30, 2023, the Company has right of use assets of approximately $4.2 million and lease liabilities of approximately $4.4 million recorded in the consolidated balance sheet. As of August 31, 2023, the Company has right of use assets of approximately $10.0 million and lease liabilities of approximately $10.2 million recorded in the consolidated balance sheet. The reduction in right of use assets and lease liabilities is due to the purchase of the Company’s corporate headquarters in October 2023.

Earnings Per Common Share

Earnings Per Common Share

Basic earnings per common share for the three months ended November 30, 2023 and 2022 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 November 30, 2023 and 2022. Such securities are excluded from the weighted average shares outstanding used to calculate diluted earnings per common share for the quarters ended November 30, 2023 and 2022 as their inclusion would be anti-dilutive since the conversion price was greater than the average market price of the Company’s common stock during these periods.

Foreign Currency Translation and Transactions

Foreign Currency Translation and Transactions

Assets and liabilities recorded in functional currencies other than the U.S. dollar (Canadian dollars for Bisco’s Canadian subsidiary) are translated into U.S. dollars at the period-end rate of exchange. The exchange rate for Canadian dollars on November 30, 2023 and 2022 was $0.74 and $0.74, respectively. The resulting balance sheet translation adjustments are charged or credited directly to accumulated other comprehensive income (loss). Revenue and expenses are transacted at the average exchange rates for the three months ended November 30, 2023 and 2022. The average exchange rates for the three months ended November 30, 2023 and 2022 were $0.73 and $0.74, respectively. All foreign sales, excluding Canadian sales, are denominated in U.S. dollars and, therefore, are not subject to foreign currency risk exposure.

Concentrations

Concentrations

Net sales to customers outside the United States were approximately 11% and 13% of revenues for the three months ended November 30, 2023 and 2022, respectively, and related accounts receivable were approximately 12% and 11% of total accounts receivable as of November 30, 2023 and 2022, respectively. Sales to customers in Canada accounted for approximately 29% and 24% of such international sales for the three months ended November 30, 2023 and 2022, respectively. Sales to customers located within Asia accounted for approximately 41% and 48% of such international sales for the three months ended November 30, 2023 and 2022, respectively.

No single customer accounted for more than 10% of revenues for the three months ended November 30, 2023 and 2022. In addition, no single customer’s receivable balance accounted for more than 10% as of November 30, 2023 and August 31, 2023, respectively.

Significant Recent Accounting Pronouncements

Significant Recent Accounting Pronouncements

In June 2016, the FASB issued 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 companies for all periods beginning after December 15, 2022, including interim periods within those fiscal years. Management has evaluated this statement and has determined that it did not have a material impact on the Company’s result of operations or financial position.

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Accrued Liabilities (Tables)

3 Months Ended

Nov. 30, 2023

Accrued Liabilities

Schedule of accrued liabilities

The Company’s accrued liabilities as of November 30, 2023 and August 31, 2023 are summarized as follows (in thousands):

	November 30,		August 31,
	2023		2023
Accrued expenses and other current liabilities:
Accrued accounts payable	$	1,806	$	2,090
Accrued compensation and payroll		3,727		6,410
Accrued taxes		8,585		7,875
Total Accrued expenses and other current liabilities	$	14,118	$	16,375

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Leases (Tables)

3 Months Ended

Nov. 30, 2023

Leases

Schedule of minimum future rental payments

Years Ending :
2024 (remaining nine months)	$	1,876,000
2025		1,579,000
2026		817,000
2027		424,000
2028		33,000
Thereafter		—
Future minimum lease payments	$	4,729,000
Less interest		(374,000)
Present value of minimum lease payments	$	4,355,000

Schedule of other information related to operating lease

	November 30,		August 31,
	2023		2023
Accrued expenses and other current liabilities	2.5 years		4.3 years
Weighted average remaining lease terms	5.33	%	4.73	%

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Earnings per Share (Tables)

3 Months Ended

Nov. 30, 2023

Earnings per Share

Schedule of reconciliation of the numerators and denominators of the basic and diluted computations for earnings per common share

	Three Months Ended
	November 30,
	2023		2022
(In thousands, except share and per share amounts)
EPS:
Net income	$	1,779	$	4,711
Less: preferred stock dividends		(19)		(19)
Net income available for common shareholders	$	1,760	$	4,692
Earnings per common share – basic and diluted	$	0.36	$	0.97

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Organization and Basis of Presentation (Details)	Nov. 30, 2023 facility
Organization and Basis of Presentation
Sales offices	51
Distribution centers	7

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Significant Accounting Policies and Significant Recent Accounting Pronouncements (Details) - USD ($)		3 Months Ended
	Oct. 20, 2023	Nov. 30, 2023	Nov. 30, 2022	Aug. 31, 2023
Significant Accounting Policies and Significant Recent Accounting Pronouncements
Allowance for credit losses		$ 256,000		$ 245,000
Inventories		1,838,000		1,806,000
Impairment recorded		3,906,000
Right of use assets		4,216,000		9,988,000
Lease liabilities		$ 4,355,000		$ 10,200,000
Potentially dilutive common shares		40,000	40,000
Convertible preferred stock (in shares)		36,000	36,000
Exchange rate on foreign currency translation and transactions		$ 0.73	$ 0.74
Hunter Property
Significant Accounting Policies and Significant Recent Accounting Pronouncements
Purchase of Hunter Property	$ 31,000,000
Value of property		$ 31,000,000
Impairment recorded		$ 3,900,000
Canada
Significant Accounting Policies and Significant Recent Accounting Pronouncements
Exchange rate on foreign currency translation and transactions		$ 0.74	$ 0.74
Sales revenue, net | Customer concentration risk | Non-US
Significant Accounting Policies and Significant Recent Accounting Pronouncements
Percentage of concentrations risk		11.00%	13.00%
Sales revenue, net | Customer concentration risk | Canada
Significant Accounting Policies and Significant Recent Accounting Pronouncements
Percentage of concentrations risk		29.00%	24.00%
Sales revenue, net | Customer concentration risk | Asia
Significant Accounting Policies and Significant Recent Accounting Pronouncements
Percentage of concentrations risk		41.00%	48.00%
Accounts receivable | Customer concentration risk | Non-US
Significant Accounting Policies and Significant Recent Accounting Pronouncements
Percentage of concentrations risk		12.00%	11.00%

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Accrued Liabilities (Details) - USD ($) $ in Thousands	Nov. 30, 2023	Aug. 31, 2023
Accrued expenses and other current liabilities
Accrued accounts payable	$ 1,806	$ 2,090
Accrued compensation and payroll	3,727	6,410
Accrued taxes	8,585	7,875
Total Accrued expenses and other current liabilities	$ 14,118	$ 16,375

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Debt (Details) - USD ($)		3 Months Ended
	Jul. 15, 2020	Nov. 30, 2023	Aug. 31, 2023	Jun. 02, 2023	Nov. 30, 2022
Debt
Line of credit facility, current borrowing capacity		$ 15,000,000
Line of credit facility, maximum borrowing capacity		3,081,000	$ 0
Construction loan		$ 4,437,000	$ 4,468,000
Prime Rate
Debt
Interest rate (in percentage)		3.50%
Construction loan payable
Debt
Proceeds from issuance of long term debt		$ 5,000,000
Line of credit long term outstanding		$ 5,000,000
Debt Instrument maturity date		May 15, 2027
Interest rate			4.35%		4.35%
Construction loan payable | Prime Rate
Debt
Fixed rate for conversion	4.60%
Debt discount (as a percent)	0.25%
Term loan
Debt
Amount drawn and converted	$ 4,807,000
Community Bank
Debt
Line of credit long term outstanding				$ 100,000
Letter of credit
Debt
Notes payable, noncurrent				$ 100,000

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Leases - Minimum Future Rental Payments (Details) - USD ($)	Nov. 30, 2023	Aug. 31, 2023
Leases
2024 (remaining nine months)	$ 1,876,000
2025	1,579,000
2026	817,000
2027	424,000
2028	33,000
Future minimum lease payments	4,729,000
Less interest	(374,000)
Present value of minimum lease payments	$ 4,355,000	$ 10,200,000

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Leases - Other Information Relating to Operating Lease (Details)	Nov. 30, 2023	Aug. 31, 2023
Leases
Weighted average remaining lease term	2 years 6 months	4 years 3 months 18 days
Weighted average discount rate	5.33%	4.73%

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Leases - Additional Information (Details)		3 Months Ended
	Oct. 20, 2023 USD ($)	Nov. 30, 2023 USD ($) lease	Nov. 30, 2022 USD ($)
Leases
Operating lease cost		$ 832,000	$ 836,000
Glendale Lease
Leases
Number of facilities leased | lease		1
Rental payment		$ 22,600
Glendale Lease | Minimum
Leases
Rental payment		1,000
Glendale Lease | Maximum
Leases
Rental payment		$ 22,600
Hunter Property
Leases
Payment to acquire building	$ 31,000,000
Hunter Property | Purchase Agreement and Escrow Instructions (the "Purchase Agreement")
Leases
Payment to acquire building	$ 31,000,000

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Nov. 30, 2023	Nov. 30, 2022
EPS:
Net Income (Loss)	$ 1,779	$ 4,711
Cumulative preferred stock dividend	(19)	(19)
Net income attributable to common shareholders	$ 1,760	$ 4,692
Earnings per common share - basic	$ 0.36	$ 0.97
Earnings per common share - diluted	$ 0.36	$ 0.97

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Earnings per Share - Additional information (Details) - shares	3 Months Ended
	Nov. 30, 2023	Nov. 30, 2022
Earnings per Share
Antidilutive potential common shares	40,000	40,000
Convertible preferred stock (in shares)	36,000	36,000
Series A cumulative convertible preferred stock
Earnings per Share
Convertible preferred stock (in shares)	36,000	36,000

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Related Party Transactions (Details) - USD ($)			3 Months Ended
	Oct. 05, 2023	Jul. 26, 2019	Nov. 30, 2023	Nov. 30, 2022
Hunter Property
Related Party Transactions
Purchase price of property in cash	$ 31,000,000
Glendale Lease
Related Party Transactions
Lease term			10 years
Initial monthly rental rate			$ 22,600
Percentage of annual rent increase			2.50%
Hunter Lease
Related Party Transactions
Initial monthly rental rate		$ 66,300
Percentage of annual rent increase		2.50%
Operating lease expense			$ 123,000	$ 214,000
Related party | Glendale Lease
Related Party Transactions
Operating lease expense			$ 78,000	$ 76,000

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Income Taxes (Details) - USD ($)	3 Months Ended
	Nov. 30, 2023	Nov. 30, 2022
Income Taxes
Income tax provision	$ 617,000	$ 1,661,000
Effective tax rate	25.80%	26.10%
Statutory rate	21.00%
Decrease in provision for income tax	$ 1,044,000
Unrecognized tax benefit	0	$ 0
Liability for penalties and interest	$ 0	$ 0

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended
	Nov. 30, 2023	Nov. 30, 2022
Pay vs Performance Disclosure
Net Income (Loss)	$ 1,779	$ 4,711

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Insider Trading Arrangements	3 Months Ended
	Aug. 31, 2023
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false