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, 2015

¨ 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 ¨

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 ¨

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 ¨ Non-accelerated filer ¨ 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 ¨ No x

As of July 10, 2015, 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,
	2015			2014			2015			2014
Revenues	$	36,900		$	36,253		$	104,561		$	98,210
Cost of revenues		26,112			26,014			73,696			70,555
Gross margin		10,788			10,239			30,865			27,655
Operating expenses:
Selling, general and administrative expenses		8,780			8,021			26,312			23,827
Income from operations		2,008			2,218			4,553			3,828

Other income (expense):
Net gain (loss) on trading securities		93			8			37			(49	)
Gain on sale of property		-			-			-			535
Interest and other (expense)		(9	)		(85	)		(3	)		(296	)
Total other income (expense)		84			(77	)		34			190
Income before income taxes		2,092			2,141			4,587			4,018
Provision for income taxes (benefit)		918			(156	)		1,899			548
Net income		1,174			2,297			2,688			3,470
Cumulative preferred stock dividend		(19	)		(19	)		(57	)		(57	)
Net income attributable to common shareholders	$	1,155		$	2,278		$	2,631		$	3,413

Basic and diluted earnings per share:	$	0.24		$	0.47		$	0.54		$	0.70
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,
	2015			2014			2015			2014
Net income	$	1,174		$	2,297		$	2,688		$	3,470
Other comprehensive (loss) gain, net of tax:
Foreign translation (loss) gain		(63	)		(68	)		(144	)		71
Total comprehensive income	$	1,111		$	2,229		$	2,544		$	3,541

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,
	2015		2014
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	4,596	$	3,480
Restricted cash, current		2,001		642
Trade accounts receivable, net		17,786		17,795
Inventory, net		16,076		14,863
Marketable securities, trading		-		73
Prepaid expenses and other current assets		1,004		1,104
Total current assets		41,463		37,957

Non-current Assets:
Restricted cash, non-current		203		322
Equipment and leasehold improvements, net		1,520		1,603
Other assets		1,010		1,001
Total assets	$	44,196	$	40,883

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Trade accounts payable	$	11,987	$	11,192
Accrued expenses and other current liabilities		3,700		3,508
Liabilities of discontinued operations – short-term		48		48
Liability for short sales of trading securities		2,001		642
Total current liabilities		17,736		15,390

Non-current Liabilities:
Liabilities of discontinued operations – long-term		155		274
Long-term debt		336		1,728
Total liabilities		18,227		17,392

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		921		1,065
Retained earnings		12,620		9,998
Total shareholders’ equity		25,969		23,491
Total liabilities and shareholders’ equity	$	44,196	$	40,883

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,
	2015			2014
Operating activities:
Net income	$	2,688		$	3,470
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		409			406
Bad debt expense		-			14
Change in inventory reserve		48			76
Gain on sale of property		-			(535	)
Net (gain) loss on investments		(37	)		49
(Increase) decrease in:
Trade accounts receivable		9			(2,972	)
Inventory		(1,261	)		(843	)
Prepaid expenses and other assets		91			390
Restricted cash – discontinued operations		119			-
Deferred tax asset		-			(889	)
Increase (decrease) in:
Trade accounts payable		524			941
Accrued expenses and other current liabilities		183			675
Deposit liability		-			(24	)
Liabilities of discontinued operations		(119	)		(146	)
Net cash provided by operating activities		2,654			612
Investing activities:
Purchase of property and equipment		(326	)		(458	)
Sale (purchase) of marketable securities, trading		110			(5,137	)
Proceeds from securities sold short		1,359			-
Proceeds from sale of marketable securities, trading		-			4,648
Proceeds from sale of property		-			1,139
Change in restricted cash – marketable securities, trading		(1,359	)		-
Net cash (used in) provided by investing activities		(216	)		192
Financing activities:
Payments on revolving credit facility		(1,400	)		(1,366	)
Payment of preferred dividend		(57	)		(57	)
Bank overdraft		271			1,251
Payments on long-term debt - real estate held for sale		-			(396	)
Borrowings (payments) on long-term debt		8			(126	)
Net cash used in financing activities		(1,178	)		(694	)
Effect of foreign currency exchange rate changes on cash and cash equivalents		(144	)		71
Net increase in cash and cash equivalents		1,116			181

Cash and cash equivalents - beginning of period		3,480			1,507
Cash and cash equivalents - end of period	$	4,596		$	1,688
Supplemental disclosures of cash flow information:
Cash paid for interest	$	13		$	299
Cash paid for taxes	$	1,071		$	666

See accompanying notes to unaudited condensed consolidated financial statements.

EACO CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

May 31, 2015

Note 1. Organization and Basis of Presentation

EACO Corporation (“EACO”) is a holding company, primarily comprised of its wholly-owned subsidiary, Bisco Industries, Inc. (“Bisco”). Bisco was incorporated in Illinois in 1974 and is a distributor of electronic components and fasteners with 46 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.

EACO was incorporated in Florida in September 1985. From the inception of EACO through June 2005, EACO’s business consisted of operating restaurants in the State of Florida. On June 29, 2005, EACO sold all of its operating restaurants. From June 2005 until the acquisition of Bisco in March 2010, Eaco’s operations consisted principally of managing five real estate properties held for leasing in Florida and California. From March 2010 through its fiscal year ended August 31, 2013, the Company had two reportable business segments: the Distribution segment, which consisted of the operations of Bisco and its subsidiary, and the Real Estate Rental segment, which consisted of managing the rental properties in Florida and California. The Company sold its remaining real estate properties in Orange Park, Florida and in Sylmar, Californial during the fiscal year ended August 31, 2014 (“fiscal 2014”). Beginning in fiscal 2014, the Company no longer reported its financial results under two separate segments, as the remaining Real Estate Rental operations were not deemed to be material to the Company’s consolidated financial statements. Accordingly, activity of the former Real Estate Rental segment has been consolidated with the financial results of the Distribution segment for all periods presented in this report.

As of May 31, 2015, the only activity reflected in the accompanying consolidated financial statements not related to the operations of Bisco relates the self-insured workers’ compensation claim liability that was originally recorded in connection with EACO’s restaurant operations, which is presented as liabilities of discontinued operations on the Company’s consolidated balance sheets (See Note 2).

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, 2014. The condensed consolidated balance sheet as of August 31, 2014 and related disclosures were derived from the audited consolidated financial statements as of August 31, 2014. Operating results for the three and nine month periods ended May 31, 2015 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 Industries, Inc., and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited (which are collectively referred to herein as the “Company”, “we”, “us” and “our”). All significant intercompany transactions and balances have been eliminated in consolidation.

Note 2. Significant Accounting Policies

Restricted Cash

During the time when the Company operated restaurants in the State of Florida, the Company was self –insuring its workers’ compensation insurance obligations. The State of Florida Division of Workers’ Compensation (the “Division”) requires self-insured companies to pledge collateral in favor of the Division in an amount sufficient to cover the projected outstanding liability. Based on this requirement, in connection with estimated remaining claims liabilities originally recorded while the Company was operating its restaurants in Florida, the Company pledged a certificate of deposit in the amount of $203,000 and $322,000 at May 31, 2015 and August 31, 2014, respectively, which are recorded as restricted cash , non-current on the accompanying consolidated balance sheets.

Trade Accounts Receivable, Net

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. A trade account receivable is considered past due if any portion of the receivable balance is outstanding for more than 30 days. The Company does not charge interest on past due balances. The allowance for doubtful accounts was $111,000 at May 31, 2015 and August 31, 2014.

Inventory, net

Inventory consists primarily of electronic fasteners and components, and is stated at the lower of cost or estimated market value. Cost is determined using the average cost method. Inventories are presented net of a reserve for slow moving or obsolete items of $1,072,000 and $1,024,000 at May 31, 2015 and August 31, 2014, 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.

Securities Sold Short

Securities sold short represent transactions in which the Company sells a security borrowed from the broker, which it is obligated to purchase and deliver back to the broker. The initial value of the underlying security is recorded as a liability, and is adjusted to market value at each reporting period, with unrealized appreciation or depreciation being recorded for the change in value of the open short position. The Company records a realized gain or loss when the short position is closed. By entering into short sales, the Company bears the market risk of an unfavorable increase in the price of the security sold short in excess of the proceeds received. The market value of open short positions is separately presented as a liability in the consolidated balance sheets.

The Company is required to establish a margin account with the lending broker equal to the market value of open short positions. As the use of such funds is restricted while the short sale is outstanding, the balance of this account is classified as restricted cash in the consolidated balance sheets.

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

Prior to June 2005, EACO self-insured workers’ compensation claims losses up to certain limits in connection with its restaurant operations in the State of Florida. 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. The estimate is frequently reviewed and adjustments to the Company’s estimated claim liability, if any, are reflected in discontinued operations. At each fiscal year end, the Company obtains an actuarial report which estimates its overall exposure based on historical claims and an evaluation of future claims. The Company pursues recovery of certain claims from an insurance carrier. Recoveries, if any, are recognized when realization is reasonably assured.

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, the Company considers all available positive and negative evidence, including, but not limited to, scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance.

We provide 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 and estimates regarding tax issues, potential outcomes and timing. Actual results could differ from those estimates. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations.

Revenue Recognition

The Company generally recognizes revenue at the time of product shipment, as the Company’s 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, 2015 and 2014 were computed based on the weighted average number of common shares outstanding during each respective period. 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 (See Note 4).

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. Revenue and expenses are translated at the weighted-average exchange rates for the quarters ended May 31, 2015 and 2014. The resulting translation adjustments are charged or credited directly to accumulated other comprehensive income or loss. The average exchange rates of Canadian dollars to U.S. dollars for the three months ended May 31, 2015 and 2014 were $0.81 and $0.91, respectively. The average exchange rates of Canadian dollars to U.S. dollars for the nine months ended May 31, 2015 and 2014 were $0.85 and $0.93, respectively.

Concentrations

Net sales to customers outside the United States were approximately 7% of total net sales for the nine months ended May 31, 2015 and 2014, and related accounts receivable were approximately 11% and 8% of total accounts receivable at May 31, 2015 and 2014 respectively.

No single customer accounted for more than 10% of revenues for the nine months ended May 31, 2015 or 2014.

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”) (0.28% and 0.23% for the 90 day LIBOR at May 31, 2015 and August 31, 2014, respectively) plus 1.75% and/or the bank’s reference rate (3.25% at May 31, 2015 and August 31, 2014). 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, 2015 and August 31, 2014 were $300,000 and $1,684,000, respectively. Availability under the line of credit was $9,700,000 and $8,316,000 at May 31, 2015 and August 31, 2014, respectively.

The line of credit agreement contains nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of May 31, 2015 and August 31, 2014, the Company was in compliance with all covenants.

Note 4. Earnings per Share

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

	For the Three Months Ended May 31,						For the Nine Months Ended May 31,
(In thousands, except share and per share amounts)	2015			2014			2015			2014
EPS:
Net income	$	1,174		$	2,297		$	2,688		$	3,470
Less: accrued preferred stock dividends		(19	)		(19	)		(57	)		(57	)
Net income available for common shareholders	$	1,155		$	2,278		$	2,631		$	3,413

Earnings per common share – basic and diluted	$	0.24		$	0.47		$	0.54		$	0.70

For the three and nine months ended May 31, 2015 and 2014, 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 shareholder, who is also the Company’s Chairman and CEO. During the three months ended May 31, 2015 and 2014, the Company incurred approximately $165,000 and $156,000, respectively, of expense related to these leases.

Note 6. Real Estate Properties

During fiscal 2014, the Company sold its remaining real estate properties located in Orange Park, Florida in Sylmar, California in October 2013 and June 2014, respectively.

Note 7. Income Taxes

The Company accounts for income taxes under the asset and liability method, whereby deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Management evaluates the need to establish a valuation allowance for deferred tax assets based upon the amount of existing temporary differences, the period in which they are expected to be recovered, and expected levels of taxable income. A valuation allowance to reduce deferred tax assets is established when it is “more likely than not” that some or all of the deferred tax assets will not be realized. Management has determined that other than deferred tax assets associated with certain state net operating losses and capital losses, net deferred tax assets will more likely than not be utilized. Therefore, valuation allowance has been established against only those assets related to state net operating losses and capital losses.

During the three and nine months ended May 31, 2015, the Company recorded an income tax provision of $918,000 and $1,899,000, respectively, resulting in effective tax rate of 43.8% and 41.4% respectively. The effective tax rate differs from the statutory rate of 34% primarily due to the existence of valuation allowance against certain deferred tax assets, state income tax expenses, and permanent book to 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 and nine months ended May 31, 2015 the Company did not increase or decrease the liability for unrecognized tax benefit. Company has elected to classify interest and penalties as a component of its income tax provision. For the three and nine months ended May 31, 2015, the Company did not increase or decrease liability for penalties or interest. The Company does not expect any changes to its unrecognized tax benefit for the next twelve months that would materially impact its consolidated financial statements.

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

From the inception of the Company through June 2005, EACO’s business consisted of operating restaurants in the State of Florida. On June 29, 2005, EACO sold all of its operating restaurants and other assets used in the restaurant operations. All the remaining activity from the restaurant operations is presented as discontinued operations in the accompanying consolidated financial statements. From June 2005 until the acquisition of Bisco in March 2010, our operations principally consisted of managing five real estate properties held for leasing in Florida and California. After the acquisition of Bisco and prior to the fiscal year ended August 31, 2013 (“fiscal 2013”), the Company had two reportable business segments: the Distribution segment, which consisted of the operations of Bisco and its subsidiary, and the Real Estate Rental segment, which consisted of managing the rental properties in Florida and California. The Company sold two of its real estate properties in fiscal 2013. For fiscal 2013 and the fiscal year ended August 31, 2014 (“fiscal 2014”), due to such sales of the real estate properties, the Real Estate Rental segment represented less than 1% of the Company’s revenues. The Company sold its remaining real estate properties during fiscal 2014, selling the Orange Park Property in October 2013 and the Sylmar Properties in June 2014. Accordingly, beginning in fiscal 2014, the Company no longer reported its financial results under two separate segments. The applicable financial results of the former Real Estate Rental segment have been consolidated with the financial results of the Distribution segment for all periods presented in this report.

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, overhead expenses allocated to the cost of inventory, 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 of Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report 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, 2014 as filed with the SEC on November 28, 2014.

Long-Lived Assets

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.

Liabilities of Discontinued Operations

Prior to June 2005, EACO self-insured workers’ compensation claims losses up to certain limits. 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. The estimate is frequently reviewed and adjustments to the Company’s estimated claim liability, if any, are reflected in discontinued operations. At each fiscal year end, the Company obtains an actuarial report which estimates its overall exposure based on historical claims and an evaluation of future claims. The Company pursues recovery of certain claims from an insurance carrier. Recoveries, if any, are recognized when realization is reasonably assured.

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.

Results of Operations

Comparison of the Three Months Ended May 31, 2015 and 2014

Revenues and Gross Profit ($ in thousands)

	Three Months Ended May 31,						$		%
	2015			2014			Change		Change

Revenues	$	36,900		$	36,253		$	647		1.8	%
Cost of revenues		26,112			26,014			98		0.4	%
Gross profit	$	10,788		$	10,239		$	549		5.4	%
Gross margin %		29.2	%		28.2	%

Revenues 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 revenues in the three months ended May 31, 2015 (“Q3 2015”) as compared to the three months ended May 31, 2014 (“Q3 2014”) remained consistent largely due to sales headcount remaining the same.

The increase in gross margins in Q3 2015 as compared to Q3 2014 is primarily due to a change in management estimates, which reduced the amount of selling, general and administrative overhead expense allocated to cost of revenues in relation to inventory costs.

Selling, General and Administrative Expenses ($ in thousands)

	Three Months Ended May 31,								%
	2015			2014			$ Change		Change
Selling, general and administrative expenses	$	8,780		$	8,021		$	759		9.5	%
Percent of revenues		23.8	%		22.1	%				1.7	%

Selling, general and administrative expenses (“SG&A”) consist 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 2015 increased from Q3 2014 largely due to a change in management estimates, which reduced the amount of selling, general and administrative overhead expense allocated to cost of revenues in relation to inventory costs. This change also increased SG&A as a percent of revenue. SG&A also increased due to annual raises in employee salaries and additional overhead in Q3 2015 from the sales location added during the fiscal year ending August 31, 2015 (“fiscal 2015”).

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

	Three Months Ended May 31,						$		%
Other income (expense):	2015			2014			Change		Change
Net gain on trading securities	$	93		$	8		$	85		1062.5	%
Interest and other expense		(9	)		(85	)		76		89.4	%
Other income (expense), net	$	84		$	(77	)	$	161		209.1	%
Other income (expense), net as a percent of revenues		0.2	%		(0.2	)%				0.4	%

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 2015, the Company recognized a net gain of $93,000 as compared to a net gain of $8,000 in Q3 2014 on trading securities. Gains in the current period were due primarily to an increase in the value of short positions the Company held. Gains in the prior year quarter were due primarily to increases in the value of the Company’s holdings in Q3 2014, primarily in its long positions.

Interest and other income increased $76,000 or 89.4% for the three months ended May 31, 2015 as compared to the same period in fiscal 2014. The increase was primarily attributable to the Company holding a lower balance on the Company’s line of credit with Community Bank in Q3 2015 compared to Q3 2014. The amount outstanding under the line of credit as of May 31, 2015 and 2014 was approximately $300,000 and $5,113,000, respectively. Further, in the prior year period, there was additional interest expense related to mortgages for the Sylmar Properties that were sold in June 2014.

Income Tax Provision ($ in thousands)

	Three Months Ended May 31,						$		%
	2015			2014			Change		Change

Income tax provision	$	918		$	(156	)	$	1,074		688.5	%
Percent of pre-tax net income		43.9	%		(7.3	)%				51.2	%

The provision for income taxes increased by $1,074,000 in Q3 2015 as compared to Q3 2014. The increase was primarily due to an income tax benefit received in the prior year quarter as a result of a decrease in the valuation allowance related to capital loss carryforwards used, which was applicable in the current year quarter.

Comparison of the Nine Months Ended May 31, 2015 and 2014 (unaudited)

Revenues and Gross Profit ($ in thousands)

	Nine Months Ended May 31,						$		%
	2015			2014			Change		Change

Revenues	$	104,561		$	98,210		$	6,351		6.5	%
Cost of revenues		73,696			70,555			3,141		4.5	%
Gross profit	$	30,865		$	27,655		$	3,210		11.6	%
Gross margin %		29.5	%		28.2	%

The increase in revenues in the nine months ended May 31, 2015 as compared to the nine months ended May 31, 2014 was largely due to increased unit sales, resulting from the Company focusing on relationship building programs with current and potential customers, as well as improving and expanding its website and online presence. Further, in fiscal 2013 and the beginning of fiscal 2014, there were significant increases in sales personnel hired and they are now becoming more efficient and selling towards the peak of their potential. It usually takes a new sales employee approximately one year before they can sell at the same rate as existing sales employees. The increase in gross margins in the nine months ended May 31, 2015 as compared to the same period in May 31, 2014 was primarily due to a change in management estimates, which reduced the amount of selling, general and administrative overhead expense allocated to cost of revenues in relation to inventory costs.

Selling, General and Administrative Expenses ($ in thousands)

	Nine Months Ended May 31,								%
	2015			2014			$ Change		Change
Selling, general and administrative expenses	$	26,312		$	23,827		$	2,485		10.4	%
Percent of revenues		25.2	%		24.3	%				0.9	%

SG&A expense for the nine months ended May 31, 2015 increased from May 31, 2014 largely due to a change in management estimates, which reduced the amount of selling, general and administrative overhead expense allocated to cost of revenues in relation to inventory costs. Increase in SG&A can also be attributed to annual raises in employee salaries and overhead from additional sales locations in the period.

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

	Nine Months Ended May 31,						$			%
Other income (expense):	2015			2014			Change			Change
Net gain (loss) on trading securities	$	37		$	(49	)	$	86			175.5	%
Gain on sale of property		-			535			(535	)		(100.0	)%
Interest and other income (expense)		(3	)		(296	)		293			99.0	%
Other income, net	$	34		$	190		$	(156	)		(82.1	)%
Other income, net as a percent of revenues		0.0	%		0.2	%					(0.2	)%

During the nine months ended May 31, 2015, the Company recognized a net gain of $37,000 as compared to a net loss of $49,000 in the nine months ended May 31, 2014 in net realized and unrealized gains. Gains in the current period were due primarily to an increase in the value of short positions the Company held. Losses in the nine months ended May 31, 2014 were primarily due to decreases in the value of the Company’s long positions.

The Company recognized a gain of $535,000 in the nine months ended May 31, 2014 related to the sale of the Orange Park Property in October 2013. There were no property sales in the nine months ended May 31, 2015 as the remaining property was sold in June 2014.

Interest and other income increased $293,000 or 99% for the nine months ended May 31, 2015 as compared to the same period in fiscal 2014. The increase was primarily attributable to the Company holding a lower balance on the Company’s line of credit with Community Bank in fiscal 2015 compared fiscal 2014. Further, in the prior year period, there was additional interest expense related to mortgages for the Sylmar Properties and the Orange Park Property that were sold during fiscal 2014.

Income Tax Provision ($ in thousands)

	Nine Months Ended May 31,						$		%
	2015			2014			Change		Change
Income tax provision	$	1,899		$	548		$	1,351		246.5	%
Percent of pre-tax net income		41.4	%		13.6	%				27.8	%

The provision for income taxes increased by $1,351,000 in the nine months ended May 31, 2015 over the prior year period. This was primarily a result of higher estimated taxable income in the current nine month period as compared to the prior year period. The percent of pre-tax net income was lower in the prior year period due to a decrease in the valuation allowance recognized in the prior year period.

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 (0.28% and 0.24% for the 90 day LIBOR at May 31, 2015 and August 31, 2014, respectively) plus 1.75% and/or the bank’s reference rate (3.25% at May 31, 2015 and August 31, 2014). 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. The line of credit agreement expires in March 2016. The amounts outstanding under this line of credit as of May 31, 2015 and 2014 were $300,000 and $5,113,000, respectively. The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of May 31, 2015, the Company was in compliance with all such covenants.

Cash Flows from Operating Activities

Cash provided by operating activities was $2,654,000 for the nine months ended May 31, 2015 as compared with cash provided by operations of $612,000 for the nine months ended May 31, 2014. The current period cash provided by operating activities was primarily due to net income in the current period, partially offset by a decrease in inventory. The prior year cash provided by operating activities was primarily due to net income and increases in trade payables and accrued expense, partially offset by increases in trade receivables and deferred tax assets.

Cash Flows from Investing Activities

Cash used in investing activities was $216,000 for the nine months ended May 31, 2015 as compared with cash provided by such activities of $192,000 for the nine months ended May 31, 2014. The decrease in investing activities comparing Q3 2015 to Q3 2014 was primarily due to the Company’s sale of the Orange Park Property and sale of securities the Company was holding during Q3 2014.

Cash Flows from Financing Activities

Cash used in financing activities for the nine months ended May 31, 2015 was $1,178,000 as compared with cash used of $694,000 for the nine months ended May 31, 2014. Cash used in financing activities for the current period was primarily for the pay down of the Company’s line of credit. The cash used in financing activities for the nine months ended May 31, 2014 consisted mainly of payments on the line of credit and the repayment of the Company’s mortgage on the Orange Park Property after the sale of that property in October 2013.

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 itsfinancial 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, 2014 as filed with the SEC on November 28, 2014.

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 by 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 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 line of credit.

Bisco has historically invested surplus funds 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 the obligations 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 and can 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. However, 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 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, 2015, the number of shares held by non-affiliates of Mr. Ceiley is approximately 90,000 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 our cash needs through external financing. However, external financing may not be available on acceptable terms, on a timely basis 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

None.

Item 6. Exhibits

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

No.		Exhibit
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, 2015	/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
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