Quarterly Report for Quarter Ending November 30, 2025 (Form 10-Q)

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 adverse economic conditions, competitive pressures, unexpected costs and losses from operations or investments, increases in costs and overhead, impact of tariffs and international trade conflicts, our ability to maintain an effective system of internal controls over financial reporting, potential losses from trading in securities, our ability to retain key personnel and good relationships with suppliers, the willingness of lenders to extend financing commitments and the availability of capital resources, and the other risks set forth in "Risk Factors" in Part II, Item 1A of this report or identified from time to time in our other filings with the SEC and in public announcements. You should not place undue reliance on these forward-looking statements that speak only as of the date hereof or the date of any other filing with the SEC, as applicable. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statement for any reason, including to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. The inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by management or any other person that the objectives or plans of the Company will be achieved.

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 office located in the Philippines. Bisco supplies parts used in the manufacture of products in a broad range of industries, including the aerospace, circuit board, communication, computer, fabrication, instrumentation, industrial equipment and marine industries.

Critical Accounting Policies and Estimates

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

Within the context of these critical accounting policies, management 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, 2025.

Revenue Recognition

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, which are at shipping point pursuant to the Company's standard terms and conditions, to customers at a point in time in an amount that reflects the consideration we expect to receive in exchange for these products. Revenue is recognized net of returns and any taxes collected from customers. We offer industry standard contractual terms in our sales orders.

Inventory

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

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 such asset's estimated fair value.

On October 20, 2023, the Company completed the purchase of the Hunter Property from the Trust for $31,000,000 in cash. An appraisal, conducted in September 2023 by an independent third party, valued the Hunter Property at $31,000,000, which was inclusive of tenant improvements previously purchased and recorded by the Company. Upon completion of the Hunter Property purchase and the termination of the Hunter Lease during the first quarter of fiscal 2024, the Company recorded an asset impairment of $3,900,000, which was the net book carrying value of the tenant improvements on the date the building was acquired.

Results of Operations

Comparison of the Three Months Ended November 30, 2025 and 2024

Net Sales and Gross Profit ($ in thousands)

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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 revenues in the three months ended November 30, 2025 ("Q1 2026") as compared to the three months ended November 30, 2024 ("Q1 2025") was largely due to increased sales of our products as a result of the expansion of our sales force and increasing demand from customers. We increased the number of sales personnel and sales management by 45 employees in the current period, from 326 sales employees in Q1 2025 to 471 sales employees in Q1 2026. We believe that increasing sales headcount leads to the addition of new customers and enables us to sell more products to existing customers. Revenues and gross profit for Q1 2026 also increased as compared to Q1 2025 due to the development of better relationships with vendors and customers, and higher inventory stock readily available to meet customer demand in the current period, particularly in the aerospace and defense industries. Gross profit as a percent of net sales has increased 1.4%, primarily due to the development of better relationships with our customers and vendors.

Selling, General and Administrative Expenses ($ in thousands)

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Selling, general and administrative expense ("SG&A") consists primarily of payroll and related expenses for the Company's sales and administrative staff, professional fees including accounting, legal and technology costs and expenses, and sales and marketing costs. SG&A in Q1 2026 increased from Q1 2025 primarily due to higher employee payroll expenses and benefit expenses due to increased total employee headcount, which increased from 605 employees in Q1 2025 to 658 employees in Q1 2026.

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

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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 2026, the Company recognized a net gain on trading securities of $43,000 as compared to a net gain of $454,000 in Q1 2025. The net trading securities gain in Q1 2026 and Q1 2025 was primarily due to timing of sales and purchases and general market climate for short and long positions during the applicable period.

Interest and other expense, net, decreased in Q1 2026 compared to Q1 2025, which was primarily due to interest expense from borrowings on the line of credit being slightly higher during Q1 2025 as compared to Q1 2026.

Income Tax Provision ($ in thousands)

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The provision for income taxes increased by $834,000 in Q1 2026 over the same prior year period. This increase was primarily due to higher income in the current quarter as compared to the prior year period. The income tax provision as a percent of pre-tax income remained consistent at 25.5% at Q1 2025 and Q1 2026.

Liquidity and Capital Resources

As of November 30, 2025 and August 31, 2025, the Company held approximately $537,000 and $728,000 of unrestricted cash and cash equivalents, respectively. The Company also held $29,719,000 and $30,375,000 of marketable securities at November 30, 2025 and August 31, 2025, respectively, which could be liquidated, if necessary.

The Company currently has an available $20,000,000 line of credit with the Bank. The Company entered into a Change in Terms Agreement dated April 12, 2024 with the Bank, which increased the principal loan amount under the line of credit to $20,000,000 and extended the maturity date of the line of credit from July 5, 2024 to February 15, 2026. The Company is currently in process of extending the line of credit with the Bank and expects it to be extended during the Company's second quarter of fiscal year 2026. The line of credit has a variable interest rate set at the bank prime index rate, provided that in no event would such interest rate be less than 3.5% per annum. Borrowings are secured by substantially all of the assets of the Company and its subsidiaries. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of each of November 30, 2025 and August 31, 2025, the Company was in compliance with all such covenants. The outstanding balance of the line of credit as of each of November 30, 2025 and August 31, 2024 was $3,000 and zero, respectively.

In April 2024, the Company engaged in a mediation concerning a pending class action lawsuit alleging wage and hour violations and related claims. The Company settled this lawsuit with court approval for the aggregate settlement amount of $7,795,000 during fiscal 2025. In September 2025, the Company used its existing cash and cash equivalents generated from operations to fund and complete the payment of the settlement. See Note 8 of the Notes to Consolidated Financial Statements of this Quarterly Report for further information.

Cash Flows from Operating Activities

Cash used in operating activities was $583,000 for the three months ended November 31, 2025 as compared with cash provided by operating activities of $2,013,000 for the three months ended November 30, 2024. Cash used in operating activities in the current period was primarily due to a decrease in accrued expenses and other current liabilities. The accrued expense decreases in the current period was primarily due to the payment of the class action lawsuit settlement in September 2025. See Note 8 of the Notes to Consolidated Financial Statements of this Quarterly Report for further information. The accrued expense decrease was also in part due to timing of inventory purchased in the period and payment of accrued bonuses from fiscal year 2025 paid in Q1 2026. Cash used in operating activities was adversely impacted to some extent by decreases in trade accounts receivables and increases in net income. Decreases in accounts receivables were primarily due to cyclical sales decreases typically observed in the first quarter of the Company's fiscal year. The Company expects to see increases in our accounts receivables for the remainder of the fiscal year due to our expected revenue growth.

The prior period cash provided by operating activities was primarily due to the net income in that period and an increase in trade accounts payable.

Cash Flows from Investing Activities

Cash used in investing activities was $762,000 for the three months ended November 30, 2025 as compared with cash used in investing activities of $5,691,000 for the three months ended November 30, 2024. Cash used in investing activities in the current period was primarily due to increases in construction in progress related to the building expansion of our Company headquarters in Anaheim, California and also reflects the purchase of additional IT and office equipment in the current period. Cash used in investing activities in the prior year was primarily due to purchases of marketable securities. The Company expects to continue to use cash in investing activities due to expected purchases of marketable securities with the Company's excess cash.

Cash Flows from Financing Activities

Cash provided by financing activities for the three months ended November 30, 2025 was $1,162,000 as compared with cash provided by financing activities of $3,461,000 for the three months ended November 30, 2024. The cash provided by financing activities for the current period is primarily due to the net increase in bank overdraft in the current period, which represents outstanding checks in excess of cash due to the nightly sweep feature of the cash account to the line of credit with the Bank. The cash used in financing activities for the prior period is primarily due to an increase in the bank overdraft balance. The Company expects to continue to see increases in the bank overdraft due to increased purchases of inventory due to projected sales growth as well as higher professional services in the current period related to development of system upgrades.

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, 2025 as filed with the SEC on November 20, 2025.

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