Edgar Filing: EACO CORP

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended May 31, 2014

o 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 of Incorporation)	(I.R.S. Employer Identification No.)

1500 NORTH LAKEVIEW AVENUE

ANAHEIM, CALIFORNIA 92807

(Address of Principal Executive Offices)

(714) 876-2490

(Registrant’s Telephone No.)

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 x No o

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

Large accelerated filer ¨

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 14, 2014, 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						Nine Months Ended
	May 31,						May 31,
	2014			2013			2014			2013

Revenues	$	36,253		$	31,368		$	98,210		$	89,148
Cost of revenues		26,014			22,405			70,555			64,038
Gross margin		10,239			8,963			27,655			25,110
Operating expenses:
Selling, general and administrative expenses		8,021			7,708			23,827			22,318
Income from operations		2,218			1,255			3,828			2,792

Other (expense) income:
Net gain (loss) on trading securities		8			85			(49	)		(34	)
Gain on sale of property		-			240			535			780
Interest expense, net		(85	)		(158	)		(296	)		(491	)
Total other (expense) income		(77	)		167			190			255
Net income before income taxes		2,141			1,422			4,018			3,047
Income taxes (benefit) provision		(156	)		138			548			739
Net income		2,297			1,284			3,470			2,308
Cumulative preferred stock dividend		(19	)		(19	)		(57	)		(57	)

Net income attributable to common shareholders	$	2,278		$	1,265		$	3,413		$	2,251

Basic and diluted earnings per share	$	0.47		$	0.26		$	0.70		$	0.46

Basic and diluted weighted average common shares outstanding		4,861,590			4,861,590			4,861,590			4,861,590

See accompanying notes to unaudited condensed consolidated financial statements.

EACO Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)

	Three Months Ended May 31,					Nine Months Ended May 31,
	2014			2013		2014		2013
Net income	$	2,297		$	1,284	$	3,470	$	2,308
Other comprehensive (loss) gain, net of tax:
Foreign translation (loss) gain		(68	)		68		71		224

Total comprehensive income	$	2,229		$	1,352	$	3,541	$	2,532

See accompanying notes to unaudited condensed consolidated financial statements.

EACO Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands, except share information)

	May 31,		August 31,
	2014		2013
ASSETS	(unaudited)
Current Assets:
Cash and cash equivalents	$	1,688	$	1,507
Trade accounts receivable, net		17,396		14,438
Inventory, net		15,039		14,272
Marketable securities, trading		1,835		1,395
Assets held for sale		7,483		7,988
Prepaid expenses and other current assets		400		619
Total current assets		43,841		40,219

Non-current Assets:
Restricted cash, non-current		548		548
Equipment and leasehold improvements, net		1,338		1,396
Deferred tax asset		2,601		1,712
Other assets		445		605
Total assets	$	48,773	$	44,480

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable	$	11,507	$	9,315
Accrued expenses and other current liabilities		3,555		2,880
Liabilities of discontinued operations – short-term		153		146
Liabilities of assets held for sale		4,883		5,397
Total current liabilities		20,098		17,738

Non-current Liabilities:
Liabilities of discontinued operations – long-term		2,257		2,410
Deposit liability		63		87
Long-term debt		5,160		6,534
Total liabilities		27,578		26,769

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		891		820
Retained earnings		7,876		4,463
Total shareholders’ equity		21,195		17,711
Total liabilities and shareholders’ equity	$	48,773	$	44,480

See accompanying notes to unaudited condensed consolidated financial statements.

EACO Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

	Nine Months Ended
	May 31,
	2014			2013
Operating activities:
Net income	$	3,470		$	2,308
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		406			464
Bad debt expense		14			58
Change in inventory reserve		76			(62	)
Gain on sale of real estate property		(535	)		(780	)
Net loss on trading securities		49			34
(Increase) decrease in:
Trade accounts receivable		(2,972	)		472
Inventory		(843	)		(1,435	)
Prepaid expenses and other assets		390			83
Deferred tax asset		(889	)		670
Increase (decrease) in:
Trade accounts payable		941			(829	)
Accrued expenses and other current liabilities		675			(561	)
Deposit liability		(24	)		(60	)
Liabilities of discontinued operations		(146	)		(111	)
Net cash provided by operating activities		612			251

Investing activities:
Purchase of property and equipment		(458	)		(631	)
Purchase of marketable securities, trading		(5,137	)		(4,792	)
Proceeds from sale of marketable securities, trading		4,648			4,829
Proceeds from securities sold short		--			619
Proceeds from sale of property		1,139			2,830
Change in restricted cash		--			(620	)
Net cash provided by investing activities		192			2,235

Financing activities:
Payments on revolving credit facility		(1,366	)		(985	)
Preferred dividend		(57	)		(57	)
Bank overdraft		1,251			(92	)
Payments on long-term debt - real estate held for sale		(396	)		--
Payments on long-term debt		(126	)		(1,663	)
Net cash used in financing activities		(694	)		(2,797	)
Effect of foreign currency exchange rate changes on cash and cash equivalents		71			224
Net increase (decrease) in cash and cash equivalents		181			(87	)

Cash and cash equivalents - beginning of period		1,507			2,568
Cash and cash equivalents - end of period	$	1,688		$	2,481

Supplemental disclosures of cash flow information:
Cash paid for interest	$	299		$	512
Cash paid for income taxes	$	666		$	196

See accompanying notes to unaudited condensed consolidated financial statements.

EACO CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2014

Note 1. Organization and Basis of Presentation

The condensed consolidated financial statements comprise, the accounts of EACO Corporation (“EACO”) and its wholly-owned subsidiary, Bisco Industries, Inc. (“Bisco”), and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited (which are collectively referred to herein as the “Company”, “we”, “us” and “our”), EACO was incorporated in the State of Florida in September 1985 and previously operated restaurants in Florida. The only remaining activities of EACO relate to: a) real estate located in Sylmar, California and the related debt, which are presented as assets and liabilities held for sale in the accompanying condensed consolidated financial statements and b) workers’ compensation claim liability relating to the restaurant operations, which is presented as liabilities of discontinued operations in the accompanying condensed consolidated financial statements. As further discussed in Note 6, in June 2014 the Company sold the Sylmar Properties.

Bisco is a distributor of electronic components and fasteners with 45 sales offices and six distribution centers located throughout the United States and Canada. 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.

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, slow moving and obsolete inventory reserves, recoverability of the carrying value and estimated useful lives of long-lived assets, workers’ compensation liability and the valuation allowance against deferred tax assets. 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 footnote 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, 2013. The condensed consolidated balance sheet as of August 31, 2013 and related disclosures were derived from the audited consolidated financial statements as of August 31, 2013. Operating results for the three and nine month periods ended May 31, 2014 are not necessarily indicative of the results that may be expected for future quarterly periods or the entire fiscal year.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year’s presentation, primarily relating to the reclassification of assets and liabilities of assets held for sale.

Principles of Consolidation

The unaudited condensed consolidated financial statements include the accounts of EACO, Bisco and Bisco Industries Limited. All significant intercompany transactions and balances have been eliminated in consolidation.

Note 2. Significant Accounting Policies

Restricted Cash

The State of Florida Division of Workers’ Compensation requires self-insured companies to pledge collateral in an amount sufficient to cover the projected outstanding liability. In compliance with this requirement, for EACO’s previous restaurant operations, the Company pledged two irrevocable letters of credit totaling $2,713,000 as of May 31, 2014 and August 31, 2013. These letters were secured by certificates of deposits totaling $548,000 at May 31, 2014 and August 31, 2013 and EACO’s two real estate properties in Sylmar, California (the “Sylmar Properties”). As a result of the sale of the Sylmar properties, the Company has secured this portion of the irrevocable letters of credit with the Company’s line of credit held with Community Bank.

Trade Accounts Receivable

Trade accounts receivable are carried at original invoice amount, less an estimate for an allowance for doubtful accounts. Management determines the allowance for doubtful accounts by identifying probable credit losses in the Company’s accounts receivable and reviewing historical data to estimate the collectability on items not yet specifically identified as problem accounts. Trade accounts receivable are written off when deemed uncollectible. Recoveries of trade accounts receivable previously written off are recorded when received. The Company does not charge interest on past due balances. The allowance for doubtful accounts was $88,000 and $183,000 at May 31, 2014 and August 31, 2013, respectively.

Inventories

Inventories consist of finished goods, primarily electronic fasteners and components, stated at the lower of cost or estimated market value. Cost is determined using the average cost method. Inventories are reported net of a reserve for slow moving or obsolete items of $1,000,000 and $924,000 at May 31, 2014 and August 31, 2013, respectively. The reserve is based upon management’s review of inventories on-hand over their expected future utilization and length of time held by the Company.

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.

Liabilities of Discontinued Operations

The Company maintains a reserve for self-insured losses for workers’ compensation claims up from its previous restaurant operations. The liability for workers’ compensation represents an estimate of the present value of the ultimate cost of uninsured losses which are unpaid as of the balance sheet dates. This liability is presented as liabilities of discontinued operations in the accompanying condensed consolidated balance sheets. The estimate is continually reviewed and adjustments to the Company’s estimated liability, if any, are reflected in discontinued operations. On a periodic basis, the Company obtains an actuarial report which estimates its overall exposure based on historical claims and an evaluation of future claims. An actuarial evaluation was last obtained by the Company as of August 31, 2013. No changes to the estimated liability were recorded during the nine months ended May 31, 2014.

Deferred Tax Assets

The Company’s policy for recording a valuation allowance against deferred tax assets is considered critical. A valuation allowance is provided for deferred tax assets if it is more likely than not 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. At May 31, 2014, due to expiring U.S. Federal capital loss carryforwards, the valuation allowance previously established against this deferred tax asset was reduced by $1,557,000. In addition, management has concluded that a valuation allowance of $176,000 should be recorded against deferred tax assets related to certain state net operating loss carryforwards. The utilization of these credits requires sufficient taxable income in the respective state jurisdictions.

Revenue Recognition

The Company generally recognizes revenue at the time of product shipment as the shipping terms are FOB shipping point. Revenue is considered to be realized or realizable and earned when there is persuasive evidence of a sales arrangement in the form of an executed contract or purchase order, the product has been shipped, the sales price is fixed or determinable, and collectability is reasonably assured.

Earnings Per Common Share

Basic earnings per common share for the three and nine months ended May 31, 2014 and 2013 were computed based on the weighted average number of common shares outstanding during each respective period. Diluted earnings per common share for those periods have been computed based on the weighted average number of common shares outstanding, giving effect to all dilutive potential common shares that were outstanding during the respective periods.

Foreign Currency Translation and Transactions

Transactions in currencies other than the functional currency (i.e., Canadian dollars for the Bisco’s Canadian subsidiary) are recorded using the exchange rates prevailing at the dates of the transactions. Exchange adjustments arising from the difference between the date a transaction was recognized and the date in which it was settled are recognized in the income statement within net income or loss.

Assets and liabilities recorded in functional currencies other than the U.S. dollar are translated into U.S. dollars at the period end rate of exchange. Revenue and expenses are translated at the weighted-average exchange rates for the three and nine months ended May 31, 2014 and 2013. The average exchange rate for the three months ended May 31, 2014 and 2013 was $0.91 and $0.98 Canadian dollars for one U.S. dollar, respectively. The average exchange rate for the nine months ended May 31, 2014 and 2013 was $0.93 and $1.00 Canadian dollars for one U.S. dollar, respectively. The resulting translation adjustments are charged or credited directly to accumulated other comprehensive income.

Concentrations

Net sales to customers outside the United States were approximately 7% for the nine months ended May 31, 2014 and 2013, and related accounts receivable were approximately 8% and 5% at May 31, 2014 and August 31, 2013 respectfully.

No single customer accounted for more than 10% of revenues for the three or nine months ended May 31, 2014 or 2013.

Note 3. Debt

The Company has a $10,000,000 line of credit agreement with Community Bank. Borrowings under this agreement bear interest at either the 30, 60, or 90 day London Inter-Bank Offered Rate (“LIBOR”) (0.23% and 0.26% for the 90 day LIBOR at May 31, 2014 and August 31, 2013, respectively) plus 1.75% and/or the bank’s reference rate (3.25% at May 31, 2014 and August 31, 2013). Borrowings are secured by substantially all assets of Bisco and are guaranteed by the Company’s Chief Executive Officer, Chairman of the Board and majority shareholder, Glen F. Ceiley. The agreement expires on March 1, 2016.

The amounts outstanding under this line of credit as of May 31, 2014 and August 31, 2013 were $5,113,000 and $6,479,000, respectively. Availability under the line of credit was $4,887,000 and $3,521,000 at May 31, 2014 and August 31, 2013, respectively.

The line of credit agreement contains nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of May 31, 2014 and August 31, 2013, the Company was in compliance with all covenants.

In October 2013, the Company modified its mortgage on the Sylmar Properties with Community Bank. As amended, principal and interest payments totaling $26,627 are due monthly and interest is fixed at 3.75% per annum. As of May 31, 2014 and August 31, 2013, the outstanding balance due on this loan with Community Bank, collateralized by the Sylmar Properties, was approximately $4,883,000 and $5,035,000, respectively. Such loan was classified as liabilities of assets held for sale on the accompanying consolidated balance sheets as of May 31, 2014 and August 31, 2013 (See Note 6). As further discussed in Note 6, in June 2014 the Company sold the Sylmar Properties and paid the related mortgage off in full.

Note 4. Earnings per Share

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

	For the Three Months Ended May 31,						For the Nine Months Ended May 31,
	2014			2013			2014			2013
(In thousands, except share and per share)
EPS:
Net income	$	2,297		$	1,284		$	3,470		$	2,308
Less: accrued preferred stock dividends		(19	)		(19	)		(57	)		(57	)
Net income available for common shareholders	$	2,278		$	1,265		$	3,413		$	2,251

Earnings per common share – basic and diluted	$	0.47		$	0.26		$	0.70		$	0.46

For the three and nine months ended May 31, 2014 and 2013, 40,000 potential common shares (issuable upon conversion of 36,000 shares of the Company’s Series A Cumulative Convertible Preferred Stock) have been excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive.

Note 5. Related Party Transactions

The Company leases three buildings under operating lease agreements from its majority stockholder. During the three months ended May 31, 2014 and 2013, the Company incurred approximately $156,000 and $128,000, respectively, of expense related to these leases.

Note 6. Real Estate Properties

In March 2014, the Company entered into an agreement to sell the Sylmar Properties. As such, the associated land, buildings and improvements and related liabilities were reclassified as assets held for sale and liabilities held for sale, respectively, on the accompanying consolidated balance sheets as of May 31, 2014 and August 31, 2013. In June 2014, the Company completed the sale of the Sylmar Properties for $9,125,000 in cash and paid the related mortgage off in full.

In October 2013, the Company sold the restaurant property in Orange Park, Florida (the “Orange Park Property”) for $1,138,500 in cash. The transaction closed in October 2013. The sale of this property resulted in a net gain of approximately $535,000.

Note 7. Income Taxes

The Company’s provision for income tax (benefit)/expense for the three and nine months ended May 31, 2014 is based on the estimated effective tax rate for the fiscal year ending August 31, 2014. Due to the sale of the Sylmar Properties, it became more likely that not that the deferred tax assets relating to capital loss carryforwards would be utilized. As such during the three months ended May 31, 2014, the Company released a valuation allowance of $1,557,000 on related deferred tax assets.

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 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 and projections and are subject to a number of risks and uncertainties that could cause our actual results to differ materially from those projected or estimated, including but not limited to adverse economic conditions, competitive pressures, unexpected costs and losses from operations or investments, increases in general and administrative costs, 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 relationships with suppliers, the willingness of Community Bank or other 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. 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

EACO was incorporated in the State of Florida in September 1985 and previously operated restaurants in Florida. The only remaining activities of EACO relate to: (a) real estate located in Sylmar, California,which was sold in June 2014and (b) workers’ compensation claim liability relating to the restaurant operations, which is presented as liabilities of discontinued operations in the condensed consolidated financial statements.

Revenues derived from the Bisco subsidiary have represented approximately 99% of our total revenues for each of the periods presented in this report and is expected to continue to represent substantially all of the Company’s total revenues for the foreseeable future.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with 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, slow moving and obsolete inventory reserves, recoverability of the carrying value and estimated useful lives of long-lived assets, workers’ compensation liability and the valuation allowance against deferred tax assets. Actual results could differ from those estimates. For additional description of the Company’s critical accounting policies, see Note 2 above 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, 2013 as filed with the SEC on November 29, 2013.

Long-Lived Assets

Revenue Recognition

Liabilities of Discontinued Operations

The Company maintains a reserve for self-insured losses for workers’ compensation claims from its previous restaurant operations. The liability for workers’ compensation represents an estimate of the present value of the ultimate cost of uninsured losses which are unpaid as of the balance sheet dates. This liability is presented as liabilities of discontinued operations in the accompanying condensed consolidated balance sheets. The estimate is continually reviewed and adjustments to the Company’s estimated liability, if any, are reflected in discontinued operations. On a periodic basis, the Company obtains an actuarial report which estimates its overall exposure based on historical claims and an evaluation of future claims. An actuarial evaluation was last obtained by the Company as of August 31, 2013. No changes to the estimated liability were recorded during the nine months ended May 31, 2014.

Deferred Tax Assets

The Company’s policy for recording a valuation allowance against deferred tax assets is considered critical. A valuation allowance is provided for deferred tax assets if it is more likely than not 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. At May 31, 2014, due to expiring U.S. Federal capital loss carryforwards, the valuation allowance previously established against this deferred tax asset was reduced by $1,557,000. In addition, management has concluded that a valuation allowance of $176,000 should be recorded against deferred tax assets related to certain state net operating loss carryforwards. The utilization of these deferred tax assets requires sufficient taxable income in the respective state jurisdictions.

Results of Operations

Comparison of the Three Months Ended May 31, 2014 and 2013 (unaudited)

Revenues and Gross Profit ($ in thousands)

	Three Months Ended May 31,						$		%
	2014			2013			Change		Change

Revenues	$	36,253		$	31,368		$	4,885		15.6	%
Cost of revenues		26,014			22,405			3,609		16.1

Gross profit	$	10,239		$	8,963		$	1,276
Gross margin %		28.2	%		28.6	%				(0.4	)%

Revenues consist primarily of sales of component parts and fasteners, but also include, to a lesser extent, kitting charges and special order fees, freight charges by the Company to its customers, and rental income from EACO owned properties. The Company is not expected to have rental income in future periods as a result of the sale of its Sylmar properties in June 2014. The increase in revenues in the three months ended May 31, 2014 (“Q3 2014”) as compared to the three months ended May 31, 2013 (“Q3 2013”) was largely due to increased unit sales, resulting from the Company focusing on relationship building programs with current and potential customers. Revenues have also increased due to significant increases in sales personnel hired in the previous year becoming more efficient and selling towards the peak of their potential.

Additionally, the Company’s sales force is divided into Sales Focus Teams (“SFTs”). These teams generally focus the majority of their time on specific industries, product lines and/or geographic regions and are designed to assist the Company in increasing market share in specific areas and, as a result, increase sales. The Company increased the number of its SFTs by 5% from the same quarter in the prior year, from 92 SFTs as of May 31, 2013 to 97 SFTs as of May 31, 2014.

Selling, General and Administrative Expenses ($ in thousands)

	Three Months Ended May 31,						$		%
	2014			2013			Change		Change

Selling, general and administrative expenses	$	8,021		$	7,708		$	313		4.1	%
Percent of revenues		22.1	%		24.6	%				(2.5	)%

Selling, general and administrative expense (“SG&A”) consists primarily of payroll and related expenses for the Company’s sales and administrative staff, professional fees including accounting, legal and technology costs and expenses, and sales and marketing costs. SG&A in Q3 2014 increased from Q3 2013 largely due to increased salaries and salary related expenses. Employee headcount increased by 10 employees, or 2.5%, from 407 in Q3 2013 to 417 in Q3 2014.

SG&A decreased as a percent of revenues in Q3 2014 primarily due to sales employees hired in the previous year working and selling at a higher efficiency. It generally takes approximately a year before new sales employees generate revenues comparable to existing sales employees as they must undergo training and become accustomed to company policies and procedures. In Q3 2013, sales employees increased 9% as compared to Q3 2012, as opposed to a 0% increase in Q3 2014 when compared to Q3 2013.

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

	Three Months Ended May 31,						$			%
Other income (expense):	2014			2013			Change			Change
Net gain on trading securities	$	8		$	85		$	(77	)		(90.6	)%
Gain on sale of real property		--			240			(240	)		(100.0	)
Interest expense, net		(85	)		(158	)		73			46.2

Other (expense) income, net	$	(77	)	$	167		$	(244	)
Other (expense) income, net as a percent of revenues		(0.2	)%		0.5	%					(0.7	)%

Other income (expense), net primarily consists of income or losses on investments in short-term marketable equity securities of publicly-held corporations, interest related to the Company’s line of credit and other long-term debt and gains and losses associated with sales of capital assets. The Company’s investment strategy consists of both long and short positions, as well as utilizing options designed to improve returns. During Q3 2014 and Q3 2013, the Company recognized $8,000 and $85,000, respectively, in net realized and unrealized gains. Gains in the current period were due primarily to an increase in the value of the Company’s holdings, primarily in its long positions. Gains in the prior year quarter were primarily due to an increase in the value of several of the short positions the Company was holding at that time.

Interest expense decreased $73,000 or 46.2% for the three months ended May 31, 2014 as compared to the same period in 2013. The decrease was primarily attributable to the lower balance held on the Company’s line of credit with Community Bank during the current year period. The amount outstanding under the line of credit as of May 31, 2014 and 2013 was approximately $5,113,000 and $6,465,000, respectively.

Income Tax Provision (Benefit) ($ in thousands)

	Three Months Ended May 31,						$			%
	2014			2013			Change			Change

Income tax provision (benefit)	$	(156	)	$	138		$	(294	)		(213.0	)%
Percent of pre-tax net income		(7.3	)%		9.7	%					(17.0	)%

The provision for income taxes decreased by $294,000 in the three month period ended May 31, 2014 over the prior year period. The income tax benefit was primarily the result of a decrease in the valuation allowance related to the capital loss carryforwards. This significantly lowered the Company’s effective tax rate, which caused an overall decrease of the income tax provision.

Comparison of the Nine Months Ended May 31, 2014 and May 31, 2013 (unaudited)

Revenues and Gross Profit ($ in thousands)

	Nine Months Ended May 31,						$		%
	2014			2013			Change		Change

Revenues	$	98,210		$	89,148		$	9,062		10.2	%
Cost of revenues		70,555			64,038			6,517		10.2

Gross profit	$	27,655		$	25,110		$	2,545
Gross margin %		28.2	%		28.2	%				0.0	%

Revenues increased in the nine months ended May 31, 2014 as compared to the prior year period largely due to increased unit sales, resulting from the Company’s focus on relationship building programs with current and potential customers. Revenues have also increased due to the large increase in sales personnel hired in the previous year becoming more efficient and selling towards the peak of their potential. The Company increased the number of SFTs by 5% as compared to the same period in the prior year, from 92 SFTs as of May 31, 2013 to 97 SFTs as of May 31, 2014.

Selling, General and Administrative Expenses ($ in thousands)

	Nine Months Ended May 31,						$		%
	2014			2013			Change		Change

Selling, general and administrative expenses	$	23,827		$	22,318		$	1,509		6.8	%
Percent of revenues		24.3	%		25.0	%				(0.7	)%

SG&A for the nine months ended May 31, 2014 increased from the nine months ended May 31, 2013 largely due to increased salaries and salary related expenses, primarily due to the higher overall headcount in the current year. Overall employee headcount increased by 10 employees, or 2.5%, from 407 at May 31, 2013 to 417 at May 31, 2014.

There is a decrease in the SG&A as a percent of revenues due to sales employees hired in the previous year working and selling at a higher efficiency. It generally takes approximately a year before new sales employees generate revenues comparable to existing sales employees as they must go through training and become accustomed to the company policies and procedures. At May 31, 2013, there was an increase of sales employees of 9% when comparing May 31, 2013 to May 31, 2012, as opposed to a 0% increase at May 31, 2014 when compared to the same period in 2013.

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

	Nine Months Ended May 31,						$			%
Other (expense) income:	2014			2013			Change			Change
Net loss on trading securities	$	(49	)	$	(34	)	$	(15	)		(44.1	)%
Gain on sale of real property		535			780			(245	)		(31.4	)
Interest expense, net		(296	)		(491	)		195			39.7
Other income, net	$	190		$	255		$	179
Other income, net as a percent of revenues		0.2	%		0.3	%					(0.1	)%

During the nine months ended May 31, 2014, the Company recognized approximately $49,000 in net realized and unrealized losses. The Company experienced net realized and unrealized losses of approximately $34,000 during the nine months ended May 31, 2013. Losses in the current period and prior period were due to decreases in the value of the Company’s holdings, primarily as a result of short positions.

The Company recognized a gain of $535,000 in the current period related to the sale of the Company’s restaurant property in Orange Park, Florida “Orange Park Property” in October 2013. In the prior year period, the company recognized a gain of approximately $540,000 and $240,000 from the sale of the Deland and Brooksville properties, respectively.

Income Tax Provision ($ in thousands)

	Nine Months Ended May 31,						$			%
	2014			2013			Change			Change

Income tax provision	$	548		$	739		$	(191	)		(25.8	)%
Percent of pre-tax net income		13.6	%		24.3	%					(10.7	)%

The provision for income taxes decreased by approximately $191,000 in the nine months ended May 31, 2014 over the prior year period. The lower effective tax rate is a result of a release in the valuation allowance related to the capital loss carryforwards.

Liquidity and Capital Resources

The Company has a $10,000,000 line of credit agreement with Community Bank. Borrowings under this agreement bear interest at either the 30, 60 or 90 day LIBOR (0.23% and 0.26% for the 90 day LIBOR at May 31, 2014 and August 31, 2013, respectively) plus 1.75% and/or the bank’s reference rate (3.25% at May 31, 2014 and August 31, 2013). Borrowings are secured by substantially all assets of Bisco and are guaranteed by the Company’s Chief Executive Officer, Chairman of the Board and majority shareholder, Glen F. Ceiley. The line of credit agreement expires on March 1, 2016. The amounts outstanding under this line of credit as of May 31, 2014 and May 31, 2013 were $5,113,000 and $6,479,000, respectively. Availability under the line of credit was $4,887,000 and $3,521,000 at May 31, 2014 and August 31, 2013, respectively. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of May 31, 2014 and August 31, 2013, the Company was in compliance with all such covenants.

In October 2013, the Company renegotiated its mortgage on the Sylmar Properties with Community Bank. As modified, principal and interest payments totaling $26,627 are due monthly and interest is fixed at 3.75%. As of May 31, 2014 and August 31, 2013, the outstanding balance due on the loan with Community Bank, collateralized by the Sylmar Properties, was approximately $4,883,000 and $5,035,000, respectively. Such loan was classified as liabilities of assets held for sale on the accompanying condensed consolidated balance sheets as of May 31, 2014 and August 31, 2013. In June 2014, the Company completed the sale of the Sylmar Properties and paid off the mortgage in full.

In November 2013, the Company reached a tentative agreement to settle for $1,250,000 in cash the largest remaining workers’ compensation claim related to the Company's discontinued restaurant operations. The settlement is subject to approval by the Centers for Medicare & Medicaid Services and will be paid in lump sum upon such approval.

Cash Flows from Operating Activities

Cash provided by operating activities was $612,000 for the nine months ended May 31, 2014 as compared with cash provided by operations of $251,000 for the nine months ended May 31, 2013. The current period cash provided by operating activities is primarily due to the increase in net income and a decrease in accrued expenses.

This was partially offset by an increase in trade accounts receivable and inventory. The increase in trade accounts receivable and inventory was primarily due to increased sales in the current period. Further, the trade accounts receivable increased due to the timing of orders received and higher sales to large customers that qualify for extended terms. Extended terms are only granted to customers that are of high credit quality. The prior year cash provided by operating activities was primarily due to net income in the period and an increase in deferred tax assets.

Cash Flows from Investing Activities

Cash provided by investing activities was $192,000 for the nine months ended May 31, 2014 as compared with cash provided of $2,235,000 for the nine months ended May 31, 2013. The decrease in investing activities comparing the nine months ended Q3 2014 to Q3 2013 is primarily due to selling the Deland and Brooksville Properties in the prior year period.

Cash Flows from Financing Activities

Cash used in financing activities for the nine months ended May 31, 2014 was $694,000 as compared with cash used of $2,797,000 for the nine months ended May 31, 2013. Cash used in financing activities for the current period is primarily due to payments on the Company’s line of credit in 2014. The cash used by financing activities for the nine months ended May 31, 2013 consisted mainly of paying down the Company’s long-term debt.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on the financial position, revenues, results of operations, liquidity or capital expenditures.

Contractual Financial Obligations

In addition to using cash flow 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 that amounts owed under debt agreements and capital leases are recorded as liabilities on the balance sheet 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, 2013 as filed with the SEC on November 29, 2013.

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

Evaluation of disclosure controls and procedures. As required by Rule 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report, the Company carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s Chief Executive Officer, who also serves as the Company’s principal financial officer. Based upon that evaluation, the Company’s Chief Executive Officer has concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered in this report.

Changes in internal control over financial reporting. There have been no changes in internal control over financial reporting during the fiscal quarter covered by this report that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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. Other risks are presented elsewhere in this report and in our other filings with the SEC, including our Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K . 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.

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

As a result of the economic downturn and continuing economic uncertainties, our operating results, and the economic strength of our customers and suppliers, are increasingly difficult to predict. 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, geopolitical events, and other factors. Although we sell our products to customers in a broad range of industries, the significant weakening of economic conditions on a global scale has caused some of our customers to experience a slowdown that has had adverse effects 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 additional 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 deficiencies in the process related to the preparation of our financial statements, segregation of duties, sufficient control in the area of financial reporting oversight and review, and appropriate personnel to ensure the complete and proper application of GAAP as it relates to certain routine accounting transactions. 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.

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 funded its operations from cash generated from its operations and/or 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 based on market conditions and trends. 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 Community Bank. The agreement is secured by substantially all of Bisco’s assets and are guaranteed by Mr. Ceiley, our Chairman, CEO and majority shareholder. 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 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.

We 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. 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 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 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 and without any 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.

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, 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.

Our strategy of expanding into new geographic areas could be costly.

One of our primary growth strategies is to grow our business through the opening of sales offices in new geographic markets. Based on our analysis of demographics in the United States, Canada and Mexico, we currently estimate there is potential market opportunity in North America 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. In addition, a particular local market’s ability to support a sales office may change because of a 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, the most effective way to attract new customers has been opening new sales offices in additional geographic regions or new markets. Our current business strategy focuses on opening a specified number of new sales offices each year, and quickly growing each new sales office. Given the recent economic slowdown, we may not be able to continue to open or grow new offices at our projected 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 leverage earnings. In addition, offices in new geographic areas face additional challenges to achieving profitability. 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.

We may not be able to identify new products and products lines, or obtain new product on favorable terms and prices or at all.

Our success depends in part on our ability to develop product expertise and identify future products and product lines that complement existing products and product lines and that respond to our customers’ needs. We may not be able to compete effectively unless our product selection keeps up with trends in the markets in which we compete.

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.

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. 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, 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.

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.

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

Glen Ceiley, our Chairman and CEO, owns or controls approximately 98% of our outstanding voting stock. Mr. Ceiley is able to exert significant influence over the outcome of almost all corporate matters, including 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.

Sales of our common stock by Glen Ceiley could cause the price of our common stock to decline.

There is currently no established trading market for our common stock, and the volume of any sales is generally low. As of May 31, 2014, the number of shares held by non-affiliates of Mr. Ceiley is less than 80,000 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 decline. The perception among investors that these sales may occur could produce the same effect.

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 may 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 results of operations. In addition, severe weather conditions could adversely impact demand for our products in particularly hard hit regions.

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

We 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.

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. We may need to satisfy on a timely basis our cash needs through external financing. However, external financing may not be available on acceptable terms, or at all.

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

On April 25, 2014, Bisco Industries, Inc. (“Bisco”), a wholly owned subsidiary of EACO Corporation, entered into a Change in Terms Agreement with Community Bank (the “Amendment”). The Amendment modifies the Business Loan Agreement dated June 1, 2007 between Bisco and Community Bank and the related Promissory Note (collectively, the “Agreement”) to extend the expiration date of the line of credit under the Agreement from March 1, 2015 to March 1, 2016.

Item 6. Exhibits

The following exhibits are filed as part of this report on Form 10-Q.

No.		Exhibit
2.1		Agreements effective March 27, 2014 by and between EACO Corporation and Selective Real Estate Investments for the sale and purchase of EACO’s real properties in Sylmar, CA (Exhibit 10.2 to the Company’s Quarterly report on Form 10-Q filed with the SEC on April 14, 2014 is incorporated herein by reference)
2.2		First Amendment to Standard Offer, Agreement and Escrow Instructions effective May 27, 2014 by and between EACO Corporation, Brisa, Inc., dba Selective Real Estate Investments, and 12458 Gladstone Land, LLC (Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2014 is incorporated herein by reference.)
2.3		First Amendment to Standard Offer, Agreement and Escrow Instructions effective May 27, 2014 by and between EACO Corporation, Brisa, Inc., dba Selective Real Estate Investments, and 12460 Gladstone Land, LLC (Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2014 is incorporated herein by reference.)
10.1		Change in Terms Agreement dated April 25, 2014 by and between Bisco Industries, Inc. and Community Bank.
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

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: July 15, 2014	/s/ Glen Ceiley
	Glen Ceiley
	Chief Executive Officer
	(Principal Executive Officer & Principal Financial Officer)

	/s/ Michael Narikawa
	Michael Narikawa
	Controller
	(Principal Accounting Officer)

EXHIBIT INDEX

No.		Exhibit
2.1		Agreements effective March 27, 2014 by and between EACO Corporation and Selective Real Estate Investments for the sale and purchase of EACO’s real properties in Sylmar, CA (Exhibit 10.2 to the Company’s Quarterly report on Form 10-Q filed with the SEC on April 14, 2014 is incorporated herein by reference)
2.2		First Amendment to Standard Offer, Agreement and Escrow Instructions effective May 27, 2014 by and between EACO Corporation, Brisa, Inc., dba Selective Real Estate Investments, and 12458 Gladstone Land, LLC (Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2014 is incorporated herein by reference.)
2.3		First Amendment to Standard Offer, Agreement and Escrow Instructions effective May 27, 2014 by and between EACO Corporation, Brisa, Inc., dba Selective Real Estate Investments, and 12460 Gladstone Land, LLC (Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on June 23, 2014 is incorporated herein by reference.)
10.1		Change in Terms Agreement dated April 25, 2014 by and between Bisco Industries, Inc. and Community Bank.
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