Document And Entity Information
Document And Entity Information - shares | 3 Months Ended | |
Nov. 30, 2021 | Aug. 19, 2022 | |
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Period End Date | Nov. 30, 2021 | |
Entity File Number | 000-14311 | |
Entity Registrant Name | EACO CORP | |
Entity Incorporation, State or Country Code | FL | |
Entity Tax Identification Number | 59-2597349 | |
Entity Address, Address Line One | 5065 East Hunter Avenue | |
Entity Address, City or Town | Anaheim | |
Entity Address, State or Province | CA | |
Entity Address, Postal Zip Code | 92807 | |
City Area Code | 714 | |
Local Phone Number | 876-2490 | |
Trading Symbol | EACO | |
Entity Central Index Key | 0000784539 | |
Entity Interactive Data Current | Yes | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Title of 12(g) Security | Common Stock, $0.01 Par Value | |
Document Fiscal Year Focus | 2022 | |
Document Fiscal Period Focus | Q1 | |
Current Fiscal Year End Date | --08-31 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 4,861,590 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Income - USD ($) | 3 Months Ended | |
Nov. 30, 2021 | Nov. 30, 2020 | |
Condensed Consolidated Statements of Income | ||
Net sales | $ 63,822,000 | $ 53,403,000 |
Cost of sales | 45,644,000 | 38,951,000 |
Gross margin | 18,178,000 | 14,452,000 |
Operating expenses: | ||
Selling, general and administrative expenses | 8,895,000 | 12,681,000 |
Income from operations | 9,283,000 | 1,771,000 |
Other (expense): | ||
Net loss on trading securities | (56,000) | (553,000) |
Interest and other expense, net | (52,000) | (69,000) |
Other (expense), net | (108,000) | (622,000) |
Income before income taxes | 9,175,000 | 1,149,000 |
Provision for income taxes | 2,389,000 | 298,000 |
Net income | 6,786,000 | 851,000 |
Cumulative preferred stock dividend | (19,000) | (19,000) |
Net income attributable to common shareholders | $ 6,767,000 | $ 832,000 |
Basic earnings per common share: | $ 1.39 | $ 0.17 |
Diluted earnings per common share: | $ 1.39 | $ 0.17 |
Basic weighted average common shares outstanding | 4,861,590 | 4,861,590 |
Diluted weighted average common shares outstanding | 4,861,590 | 4,861,590 |
Condensed Consolidated Statem_2
Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
Nov. 30, 2021 | Nov. 30, 2020 | |
Condensed Consolidated Statements of Comprehensive Income | ||
Net income | $ 6,786 | $ 851 |
Other comprehensive gain (loss), net of tax: | ||
Foreign translation gain (loss) | (480) | (82) |
Total comprehensive income | $ 6,306 | $ 769 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets - USD ($) $ in Thousands | Nov. 30, 2021 | Aug. 31, 2021 | [1] |
Current Assets: | |||
Cash and cash equivalents | $ 5,583 | $ 4,455 | |
Restricted cash | 10 | 10 | |
Trade accounts receivable, net | 34,168 | 33,929 | |
Inventory, net | 42,542 | 40,448 | |
Marketable securities, trading | 3,684 | 3,741 | |
Prepaid expenses and other current assets | 11,395 | 6,780 | |
Total current assets | 97,382 | 89,363 | |
Property, equipment and leasehold improvements, net | 8,173 | 8,269 | |
Operating lease right-of-use assets | 11,304 | 11,084 | |
Other assets, net | 1,404 | 1,669 | |
Total assets | 118,263 | 110,385 | |
Current Liabilities: | |||
Trade accounts payable | 17,047 | 16,413 | |
Accrued expenses and other current liabilities | 11,708 | 10,964 | |
Current portion of operating lease liabilities | 3,301 | 3,096 | |
Current portion of long-term debt | 119 | 113 | |
Total current liabilities | 32,175 | 30,586 | |
Non-current Liabilities: | |||
Long-term debt | 4,552 | 4,585 | |
Operating lease liabilities | 8,127 | 8,092 | |
Total liabilities | 44,854 | 43,263 | |
Commitments and Contingencies (Note 8) | |||
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 | 300 | 780 | |
Retained earnings | 60,681 | 53,914 | |
Total shareholders' equity | 73,409 | 67,122 | [2] |
Total liabilities and shareholders' equity | $ 118,263 | $ 110,385 | |
[1] Derived from the Company’s audited financial statements included in its Form 10-K for the year ended August 31, 2021 filed with the U.S. Securities and Exchange Commission on July 6, 2022. Derived from the Company’s audited financial statements included in its Form 10-K for the years ended August 31, 2021 and 2020 as filed with the U. S. Securities and Exchange Commission on July 6, 2022 and November 30, 2020, respectively . |
Condensed Consolidated Balanc_2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) | Nov. 30, 2021 | Aug. 31, 2021 |
Condensed Consolidated Balance Sheets | ||
Convertible preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Convertible preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Convertible preferred stock, shares outstanding | 36,000 | 36,000 |
Convertible preferred stock, liquidation value (in dollars) | $ 900 | $ 900 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 8,000,000 | 8,000,000 |
Common stock, shares outstanding | 4,861,590 | 4,861,590 |
Condensed Consolidated Statem_3
Condensed Consolidated Statement of Shareholders' Equity - USD ($) $ in Thousands | Convertible Preferred Stock | Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Income [Member] | Retained Earnings | Total | ||
Balance at the beginning at Aug. 31, 2020 | $ 1 | $ 49 | $ 12,378 | $ 788 | $ 45,603 | $ 58,819 | ||
Balance at the beginning (in Shares) at Aug. 31, 2020 | 36,000 | 4,861,590 | ||||||
Preferred dividends | (19) | (19) | ||||||
Foreign translation gain (loss) | (82) | (82) | ||||||
Net income | 851 | 851 | ||||||
Balance at the end at Nov. 30, 2020 | $ 1 | $ 49 | 12,378 | 706 | 46,435 | 59,569 | ||
Balance at the end (in Shares) at Nov. 30, 2020 | 36,000 | 4,861,590 | ||||||
Balance at the beginning at Aug. 31, 2021 | [1] | $ 1 | $ 49 | 12,378 | 780 | 53,914 | 67,122 | [2] |
Balance at the beginning (in Shares) at Aug. 31, 2021 | [1] | 36,000 | 4,861,590 | |||||
Preferred dividends | (19) | (19) | ||||||
Foreign translation gain (loss) | (480) | (480) | ||||||
Net income | 6,786 | 6,786 | ||||||
Balance at the end at Nov. 30, 2021 | $ 1 | $ 49 | $ 12,378 | $ 300 | $ 60,681 | $ 73,409 | ||
Balance at the end (in Shares) at Nov. 30, 2021 | 36,000 | 4,861,590 | ||||||
[1] Derived from the Company’s audited financial statements included in its Form 10-K for the years ended August 31, 2021 and 2020 as filed with the U. S. Securities and Exchange Commission on July 6, 2022 and November 30, 2020, respectively . Derived from the Company’s audited financial statements included in its Form 10-K for the year ended August 31, 2021 filed with the U.S. Securities and Exchange Commission on July 6, 2022. |
Condensed Consolidated Statem_4
Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | |
Nov. 30, 2021 | Nov. 30, 2020 | |
Operating activities: | ||
Net income | $ 6,786 | $ 851 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||
Depreciation and amortization | 382 | 377 |
Bad debt expense | 9 | |
Net unrealized loss on trading securities | 56 | 553 |
Increase (decrease) in cash from changes in | ||
Trade accounts receivable | (248) | 1,634 |
Inventory | (2,094) | (71) |
Prepaid expenses and other assets | (4,350) | 716 |
Operating lease right-of-use assets | (220) | 417 |
Trade accounts payable | 1,642 | 666 |
Accrued expenses and other current liabilities | 744 | (723) |
Operating lease liabilities | 240 | (524) |
Net cash provided by operating activities | 2,947 | 3,896 |
Investing activities: | ||
Additions to property, equipment, and leasehold improvements | (286) | (179) |
Sale of marketable securities, trading | 1 | 24 |
Net change in liabilities for short sales of trading securities | 286 | |
Net cash (used in) provided by investing activities | (285) | 131 |
Financing activities: | ||
Payments on revolving credit facility, net | (2,187) | |
Payments on long-term debt | (27) | |
Preferred stock dividend | (19) | (19) |
Bank overdraft | (1,008) | (867) |
Net cash used in financing activities | (1,054) | (3,073) |
Effect of foreign currency exchange rate changes on cash and cash equivalents | (480) | (82) |
Net increase in cash, cash equivalents, and restricted cash | 1,128 | 872 |
Cash, cash equivalents, and restricted cash - beginning of period | 4,465 | 8,995 |
Cash, cash equivalents, and restricted cash - end of period | 5,593 | 9,867 |
Supplemental disclosures of cash flow information: | ||
Cash paid for interest | $ 52 | $ 48 |
Organization and Basis of Prese
Organization and Basis of Presentation | 3 Months Ended |
Nov. 30, 2021 | |
Organization and Basis of Presentation | |
Organization and Basis of Presentation | Note 1. Organization and Basis of Presentation EACO Corporation (“EACO”), incorporated in Florida in September 1985, is a holding company, primarily comprised of its wholly-owned subsidiary, Bisco Industries, Inc. (“Bisco”) and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited. Substantially all of EACO’s operations are conducted through Bisco and Bisco Industries Limited. Bisco was incorporated in Illinois in 1974 and is a distributor of electronic components and fasteners with |
Significant Accounting Policies
Significant Accounting Policies and Significant Recent Accounting Pronouncements | 3 Months Ended |
Nov. 30, 2021 | |
Significant Accounting Policies and Significant Recent Accounting Pronouncements | |
Significant Accounting Policies and Significant Recent Accounting Pronouncements | Note 2. Significant Accounting Policies and Significant Recent Accounting Pronouncements Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include allowance for doubtful accounts receivable, provision for slow moving and obsolete inventory, recoverability of the carrying value and estimated useful lives of long-lived assets, and the valuation allowance against deferred tax assets, if any. Actual results could differ from those estimates. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with GAAP for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments considered necessary in order to make the financial statements not misleading have been included. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations for presentation of interim financial information. Therefore, the condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended August 31, 2021 (“fiscal 2021”). The condensed consolidated balance sheet as of August 31, 2021 and related disclosures were derived from the Company’s audited consolidated financial statements as of August 31, 2021. Operating results for the three months ended November 30, 2021 are not necessarily indicative of the results that may be expected for future quarterly periods or the entire fiscal year. Principles of Consolidation The consolidated financial statements for all periods presented include the accounts of EACO, its wholly-owned subsidiary, Bisco, and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited (all of which are collectively referred to herein as the “Company”, “we”, “us” and “our”). All significant intercompany transactions and balances have been eliminated in consolidation. Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. 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 if past due more than 30 days. The Company does not charge interest on past due balances. The allowance for doubtful accounts was $161,000 at November 30, 2021 and August 31, 2021. Inventories, Net Inventories consist primarily of electronic fasteners and components, and are stated at the lower of cost or estimated net realizable value. Cost is determined using the average cost method. Inventories are adjusted for slow moving or obsolete items approximating $1,613,000 and $1,578,000 at November 30, 2021 and August 31, 2021, respectively. The adjustments to inventory costs are based upon management’s review of inventories on-hand over their expected future utilization and length of time held by the Company. Marketable Trading Securities The Company invests in marketable trading securities, which include long and short positions in equity securities. Short positions represent securities sold, but not yet purchased. Short sales result in obligations to purchase securities at a later date and are separately presented as a liability in the Company’s consolidated balance sheets. As of November 30, 2021 and August 31, 2021, the Company’s total obligation for securities sold, but not yet purchased was zero. Restricted cash to collateralize the Company’s obligations for short sales was zero at November 30, 2021 and August 31, 2021. Securities are stated at fair value, which is determined using the quoted closing prices at each reporting date. Realized gains and losses on investment transactions are recognized as incurred in the consolidated statements of operations. Net unrealized gains and losses are reported in the statements of operations and represent the change in the market value of investment holdings during the period. Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of the impairment review, assets are measured by comparing the carrying amount to future net cash flows. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their estimated fair values. Income Taxes Deferred taxes on income result from temporary differences between the reporting of income for financial statement and tax reporting purposes. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all of the deferred tax asset will not be realized. In making such determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance. 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 about tax issues, potential outcomes and timing. Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations. Revenue Recognition We derive our revenue primarily from product sales. We determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. The Company’s performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products upon shipment to customers at a point in time in an amount that reflects the consideration we expect to receive in exchange for these products. Revenue is recognized net of returns and any taxes collected from customers. We offer industry standard contractual terms in our purchase orders. Earnings Per Common Share Basic earnings per common share for the three months ended November 30, 2021 and 2020 were computed based on the weighted average number of common shares outstanding. Diluted earnings per share for those periods have been computed based on the weighted average number of common shares outstanding, giving effect to all potentially dilutive common shares that were outstanding during the respective periods. Potentially dilutive common shares represent 40,000 common shares issuable upon conversion of 36,000 shares of Series A convertible preferred stock, which were outstanding at November 30, 2021 and 2020. Such securities are excluded from the weighted average shares outstanding used to calculate diluted earnings per common share for the quarters ended November 30, 2021 and 2020 as their inclusion would be anti-dilutive since the conversion price was greater than the average market price of the Company’s common stock during these periods (See Note 5). Foreign Currency Translation and Transactions Assets and liabilities recorded in functional currencies other than the U.S. dollar (Canadian dollars for Bisco’s Canadian subsidiary) are translated into U.S. dollars at the period-end rate of exchange. The exchange rate for Canadian dollars on November 30, 2021 and 2020 was $0.79 and $0.77, respectively. The resulting balance sheet translation adjustments are charged or credited directly to accumulated other comprehensive income (loss). Revenue and expenses are transacted at the average exchange rates for the three months ended November 30, 2021 and 2020. The average exchange rates for the three months ended November 30, 2021 and 2020 were $0.80 and $0.76, respectively. All foreign sales, excluding Canadian sales, are denominated in U.S. dollars and, therefore, are not subject to foreign currency risk exposure. Concentrations Net sales to customers outside the United States were approximately 10% of revenues for both the three months ended November 30, 2021 and 2020, and related accounts receivable were approximately 13% of total accounts receivable for both November 30, 2021 and 2020. Sales to customers in Canada accounted for approximately No single customer accounted for more than 10% of revenues and accounts receivable for the three months ended November 30, 2021 and 2020. Significant Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-02 on September 1, 2019 and applied the package of practical expedients included therein, as well as utilized the transition method included in ASU 2018-11. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”, which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years. In November 2019, the FASB deferred the effective dates of the new credit losses standard for all entities except SEC filers that are not smaller reporting companies to fiscal year beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating this statement and its impact on its results of operations or financial position. |
Accrued Liabilities
Accrued Liabilities | 3 Months Ended |
Nov. 30, 2021 | |
Accrued Liabilities | |
Accrued Liabilities | Note 3. Accrued Liabilities The Company’s accrued liabilities as of November 30, 2021 and August 31, 2021 are summarized as follows (in thousands): November 30, August 31, 2021 2021 Accrued expenses and other current liabilities Accrued accounts payable $ 3,766 $ 3,054 Accrued compensation and payroll 2,519 5,033 Accrued taxes 5,423 2,877 Total Accrued expenses and other current liabilities $ 11,708 $ 10,964 |
Debt
Debt | 3 Months Ended |
Nov. 30, 2021 | |
Debt | |
Debt | Note 4. Debt At November 30, 2021, the Company had a $15,000,000 line of credit agreement with Citizens Business Bank (“the Bank”). Borrowings are secured by substantially all of the assets of the Company and its subsidiaries. The amounts outstanding under this line of credit as of November 30, 2021 and August 31, 2021 were zero . The line of credit agreement contains certain nonfinancial and financial covenants, including the maintenance of certain financial ratios. As of November 30, 2021 and August 31, 2021, the Company was in compliance with all such covenants. The expiration date of the line of credit under the line of credit agreement was July 5, 2022. The Company is currently in process of negotiating a new line of credit agreement with the Bank. The Company believes it has adequate cash available for its business operations while it negotiates its new line of credit agreement with the Bank. The Company also entered into a Loan Agreement with the Bank to borrow up to $5,000,000 (the “Construction Loan”) for the primary purpose of financing tenant improvements at its new corporate headquarters located at 5065 East Hunter Avenue in Anaheim, California (the “Hunter Property”). The Construction Loan was a line of credit evidenced by a Promissory Note in the principal amount of up to $5,000,000 with a maturity date of May 15, 2027. The terms of the Construction Loan provided that the Company could only request advances through July 15, 2020, and thereafter, the Construction Loan converted to a term loan with a fixed rate of 4.6%, which is entitled to a .25% rate discount if a demand deposit account is held with the Bank. On July 15, 2020, the amount drawn on the Construction Loan was converted to a term loan in the amount of per annum at both November 30, 2021 and August 31, 2021). Concurrent with the execution of this Construction Loan, Bisco entered into a commercial security agreement, dated July 12, 2019, with the Bank, pursuant to which Bisco granted the Bank a security interest in substantially all of Bisco’s personal property to secure Bisco’s obligations under the Construction Loan. The outstanding balance of the Construction Loan at November 30, 2021 and August 31, 2021 was EACO has also entered into a business loan agreement (and related $100,000 promissory note) with the Bank in order to obtain a $100,000 letter of credit as security for the Company’s worker’s compensation requirements. |
Earnings per Share
Earnings per Share | 3 Months Ended |
Nov. 30, 2021 | |
Earnings per Share | |
Earnings per Share | Note 5. Earnings per Share The following is a reconciliation of the numerators and denominators of the basic and diluted computations for earnings per common share (in thousands, except per share data): Three Months Ended November 30, (In thousands, except share and per share amounts) 2021 2020 EPS: Net income $ 6,786 $ 851 Less: accrued preferred stock dividends (19) (19) Net income available for common shareholders $ 6,767 $ 832 Earnings per common share – basic and diluted $ 1.39 $ 0.17 For the three months ended November 30, 2021 and 2020, 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 inclusion would be anti-dilutive since the conversion price was greater than the average market price of the common stock. |
Related Party Transactions
Related Party Transactions | 3 Months Ended |
Nov. 30, 2021 | |
Related Party Transactions | |
Related Party Transactions | Note 6. Related Party Transactions The Company leases its Chicago area sales office and distribution center located in Glendale Heights, Illinois under an operating lease agreement (the “Glendale Lease”) from the Glen F. Ceiley and Barbara A.Ceiley Revocable Trust (the “Trust”), which is the grantor trust of Glen Ceiley, the Company’s Chief Executive Officer, Chairman of the Board, and majority shareholder. The Glendale Lease is a ten year lease with an initial monthly rental rate of $22,600, which is subject to annual rent increases of approximately 2.5% as set forth in the Glendale Lease. During the three months ended November 30, 2021 and 2020, the Company incurred expense related to the Glendale Lease of approximately $75,000 and $72,000, respectively. On July 26, 2019, the Company entered into a Commercial Lease Agreement with the Trust (the “Hunter Lease”), for the lease of the Hunter Property, which houses the Company’s new corporate headquarters. The Company completed its move to the new headquarters located at the Hunter Property in March 2020. The term of the Hunter Lease commenced on September 2, 2019 and ends on August 31, 2029 with an initial monthly rental rate of as set forth in the Hunter Lease. During the three months ended November 30, 2021 and 2020, the Company incurred expense related to the Hunter Lease of approximately |
Income Taxes
Income Taxes | 3 Months Ended |
Nov. 30, 2021 | |
Income Taxes | |
Income Taxes | Note 7. Income Taxes On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”). Intended to provide economic relief to those impacted by the coronavirus (COVID-19) pandemic, the CARES Act includes provisions, among others, addressing the carryback of net operating losses for specific periods, refunds of alternative minimum tax credits, temporary modifications to the limitations placed on the tax deductibility of net interest expenses, and technical amendments for qualified improvement property (“QIP”). Additionally, the CARES Act, in efforts to enhance business’ liquidity, provides for refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes. We are continuing to examine additional impacts that the CARES Act may have on our U.S. business, and other operations impacted by COVID-19. The effects and ultimate results of our evaluation, if any, could result in temporary book-to-tax timing differences (i.e., no effective tax rate impact) for income tax purposes. During the three months ended November 30, 2021 and 2020, the Company recorded an income tax provision of $2,389,000 and $298,000, respectively, resulting in an effective tax rate of 26.0% and 25.9%, respectively. The current period effective tax rate differs from the statutory rate of 21% primarily due to the state tax rates and permanent book tax differences. Accounting for uncertainty in income taxes prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. For the three months ended November 30, 2021, the Company did not have a liability for any unrecognized tax benefit. The Company has elected to classify interest and penalties as a component of its income tax provision. For the three months ended November 30, 2021, the Company did not have a liability for penalties or interest. The Company does not expect any changes to its unrecognized tax benefit for the next nine months that would materially impact its consolidated financial statements. The Company’s tax years for 2018, 2019 and 2020 are subject to examination by the taxing authorities. With few exceptions, the Company is no longer subject to U.S. federal, state, local or foreign examinations by taxing authorities for years before 2017. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Nov. 30, 2021 | |
Commitments and Contingencies | |
Commitments and Contingencies | Note 8. Commitments and Contingencies 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. With respect to the ongoing and evolving coronavirus (COVID-19) outbreak, which was designated as a pandemic by the World Health Organization on March 11, 2020, the outbreak has caused substantial disruption in international and U.S. economies and markets. The outbreak has had, and may continue to have, an adverse impact on the Company, as well as the industries that the Company serves, such as the aerospace, electronic parts, and industrial equipment industries. If repercussions of the outbreak are prolonged, it could have a significant adverse impact to the underlying industries of some of the Company’s customers. To date, the Company has not incurred any significant disruptions to its business activities or supply chain, but has been required to limit the operations of our sales offices. Management cannot, at this point, estimate ultimate losses related to the COVID-19 outbreak, if any, and accordingly no adjustments were reflected in the accompanying financial statements related to this matter. |
Subsequent Events
Subsequent Events | 3 Months Ended |
Nov. 30, 2021 | |
Subsequent Events | |
Subsequent Events | Note 9. Subsequent Events Management has evaluated events subsequent to November 30, 2021, through the date that these unaudited condensed consolidated financial statements are filed with the SEC, for transactions and other events which may require adjustment of and/or disclosure in such financial statements. |
Significant Accounting Polici_2
Significant Accounting Policies and Significant Recent Accounting Pronouncements (Policies) | 3 Months Ended |
Nov. 30, 2021 | |
Significant Accounting Policies and Significant Recent Accounting Pronouncements | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. These estimates include allowance for doubtful accounts receivable, provision for slow moving and obsolete inventory, recoverability of the carrying value and estimated useful lives of long-lived assets, and the valuation allowance against deferred tax assets, if any. Actual results could differ from those estimates. |
Basis of Presentation | Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared by the Company in conformity with GAAP for interim financial information and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments considered necessary in order to make the financial statements not misleading have been included. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to SEC rules and regulations for presentation of interim financial information. Therefore, the condensed consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended August 31, 2021 (“fiscal 2021”). The condensed consolidated balance sheet as of August 31, 2021 and related disclosures were derived from the Company’s audited consolidated financial statements as of August 31, 2021. Operating results for the three months ended November 30, 2021 are not necessarily indicative of the results that may be expected for future quarterly periods or the entire fiscal year. |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements for all periods presented include the accounts of EACO, its wholly-owned subsidiary, Bisco, and Bisco’s wholly-owned Canadian subsidiary, Bisco Industries Limited (all of which are collectively referred to herein as the “Company”, “we”, “us” and “our”). All significant intercompany transactions and balances have been eliminated in consolidation. |
Cash and Cash Equivalents | Cash and Cash Equivalents The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. |
Trade Accounts Receivable | 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 if past due more than 30 days. The Company does not charge interest on past due balances. The allowance for doubtful accounts was $161,000 at November 30, 2021 and August 31, 2021. |
Inventories, Net | Inventories, Net Inventories consist primarily of electronic fasteners and components, and are stated at the lower of cost or estimated net realizable value. Cost is determined using the average cost method. Inventories are adjusted for slow moving or obsolete items approximating $1,613,000 and $1,578,000 at November 30, 2021 and August 31, 2021, respectively. The adjustments to inventory costs are based upon management’s review of inventories on-hand over their expected future utilization and length of time held by the Company. |
Marketable Trading Securities | Marketable Trading Securities The Company invests in marketable trading securities, which include long and short positions in equity securities. Short positions represent securities sold, but not yet purchased. Short sales result in obligations to purchase securities at a later date and are separately presented as a liability in the Company’s consolidated balance sheets. As of November 30, 2021 and August 31, 2021, the Company’s total obligation for securities sold, but not yet purchased was zero. Restricted cash to collateralize the Company’s obligations for short sales was zero at November 30, 2021 and August 31, 2021. Securities are stated at fair value, which is determined using the quoted closing prices at each reporting date. Realized gains and losses on investment transactions are recognized as incurred in the consolidated statements of operations. Net unrealized gains and losses are reported in the statements of operations and represent the change in the market value of investment holdings during the period. |
Long-Lived Assets | Long-Lived Assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of the impairment review, assets are measured by comparing the carrying amount to future net cash flows. If assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds their estimated fair values. |
Income Taxes | Income Taxes Deferred taxes on income result from temporary differences between the reporting of income for financial statement and tax reporting purposes. A valuation allowance related to a deferred tax asset is recorded when it is more likely than not that some or all of the deferred tax asset will not be realized. In making such determination, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income (if any), tax planning strategies and recent financial performance. 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 about tax issues, potential outcomes and timing. Although the outcome of these tax audits is uncertain, in management’s opinion adequate provisions for income taxes have been made for potential liabilities emanating from these reviews. If actual outcomes differ materially from these estimates, they could have a material impact on our results of operations. |
Revenue Recognition | Revenue Recognition We derive our revenue primarily from product sales. We determine revenue recognition through the following steps: (1) identification of the contract with a customer; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when, or as, we satisfy a performance obligation. The Company’s performance obligations consist solely of product shipped to customers. Revenue from product sales is recognized upon transfer of control of promised products upon shipment to customers at a point in time in an amount that reflects the consideration we expect to receive in exchange for these products. Revenue is recognized net of returns and any taxes collected from customers. We offer industry standard contractual terms in our purchase orders. |
Earnings Per Common Share | Earnings Per Common Share Basic earnings per common share for the three months ended November 30, 2021 and 2020 were computed based on the weighted average number of common shares outstanding. Diluted earnings per share for those periods have been computed based on the weighted average number of common shares outstanding, giving effect to all potentially dilutive common shares that were outstanding during the respective periods. Potentially dilutive common shares represent 40,000 common shares issuable upon conversion of 36,000 shares of Series A convertible preferred stock, which were outstanding at November 30, 2021 and 2020. Such securities are excluded from the weighted average shares outstanding used to calculate diluted earnings per common share for the quarters ended November 30, 2021 and 2020 as their inclusion would be anti-dilutive since the conversion price was greater than the average market price of the Company’s common stock during these periods (See Note 5). |
Foreign Currency Translation and Transactions | Foreign Currency Translation and Transactions Assets and liabilities recorded in functional currencies other than the U.S. dollar (Canadian dollars for Bisco’s Canadian subsidiary) are translated into U.S. dollars at the period-end rate of exchange. The exchange rate for Canadian dollars on November 30, 2021 and 2020 was $0.79 and $0.77, respectively. The resulting balance sheet translation adjustments are charged or credited directly to accumulated other comprehensive income (loss). Revenue and expenses are transacted at the average exchange rates for the three months ended November 30, 2021 and 2020. The average exchange rates for the three months ended November 30, 2021 and 2020 were $0.80 and $0.76, respectively. All foreign sales, excluding Canadian sales, are denominated in U.S. dollars and, therefore, are not subject to foreign currency risk exposure. |
Concentrations | Concentrations Net sales to customers outside the United States were approximately 10% of revenues for both the three months ended November 30, 2021 and 2020, and related accounts receivable were approximately 13% of total accounts receivable for both November 30, 2021 and 2020. Sales to customers in Canada accounted for approximately No single customer accounted for more than 10% of revenues and accounts receivable for the three months ended November 30, 2021 and 2020. |
Significant Recent Accounting Pronouncements | Significant Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company adopted ASU 2016-02 on September 1, 2019 and applied the package of practical expedients included therein, as well as utilized the transition method included in ASU 2018-11. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses”, which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance is effective for annual reporting periods beginning after December 15, 2019 and interim periods within those fiscal years. In November 2019, the FASB deferred the effective dates of the new credit losses standard for all entities except SEC filers that are not smaller reporting companies to fiscal year beginning after December 15, 2022, including interim periods within those fiscal years. Management is currently evaluating this statement and its impact on its results of operations or financial position. |
Accrued Liabilities (Tables)
Accrued Liabilities (Tables) | 3 Months Ended |
Nov. 30, 2021 | |
Accrued Liabilities | |
Schedule of accrued liabilities | The Company’s accrued liabilities as of November 30, 2021 and August 31, 2021 are summarized as follows (in thousands): November 30, August 31, 2021 2021 Accrued expenses and other current liabilities Accrued accounts payable $ 3,766 $ 3,054 Accrued compensation and payroll 2,519 5,033 Accrued taxes 5,423 2,877 Total Accrued expenses and other current liabilities $ 11,708 $ 10,964 |
Earnings per Share (Tables)
Earnings per Share (Tables) | 3 Months Ended |
Nov. 30, 2021 | |
Earnings per Share | |
Schedule of Earnings Per Share | The following is a reconciliation of the numerators and denominators of the basic and diluted computations for earnings per common share (in thousands, except per share data): Three Months Ended November 30, (In thousands, except share and per share amounts) 2021 2020 EPS: Net income $ 6,786 $ 851 Less: accrued preferred stock dividends (19) (19) Net income available for common shareholders $ 6,767 $ 832 Earnings per common share – basic and diluted $ 1.39 $ 0.17 |
Organization and Basis of Pre_2
Organization and Basis of Presentation (Details) | Nov. 30, 2021 facility |
Organization and Basis of Presentation | |
Sales offices | 50 |
Distribution centers | 7 |
Significant Accounting Polici_3
Significant Accounting Policies and Significant Recent Accounting Pronouncements (Details) - USD ($) | 3 Months Ended | ||
Nov. 30, 2021 | Nov. 30, 2020 | Aug. 31, 2021 | |
Significant Accounting Policies [Line Items] | |||
Allowance for Doubtful Accounts Receivable | $ 161,000 | $ 161,000 | |
Inventory Valuation Reserves | 1,613,000 | 1,578,000 | |
Fair Value Estimate Not Practicable Securities Sold Not Yet Purchases | 0 | 0 | |
Company's obligations | $ 0 | $ 0 | |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 40,000 | 40,000 | |
Convertible Preferred Stock, Shares Issued upon Conversion | 36,000 | 36,000 | |
Exchange Rate On Foreign Currency Translation And Transactions | $ 0.80 | $ 0.76 | |
Percentage of Revenue Per Entity, Maximum | 10% | 10% | |
Canada | |||
Significant Accounting Policies [Line Items] | |||
Exchange Rate On Foreign Currency Translation And Transactions | $ 0.79 | $ 0.77 | |
Sales Revenue, Net | Customer Concentration Risk | Non-US | |||
Significant Accounting Policies [Line Items] | |||
Concentration Risk, Percentage | 10% | 10% | |
Sales Revenue, Net | Customer Concentration Risk | Canada | |||
Significant Accounting Policies [Line Items] | |||
Concentration Risk, Percentage | 33% | 38% | |
Sales Revenue, Net | Customer Concentration Risk | Asia | |||
Significant Accounting Policies [Line Items] | |||
Concentration Risk, Percentage | 45% | 54% | |
Accounts Receivable | Customer Concentration Risk | Non-US | |||
Significant Accounting Policies [Line Items] | |||
Concentration Risk, Percentage | 13% | 13% |
Accrued Liabilities (Details)
Accrued Liabilities (Details) - USD ($) $ in Thousands | Nov. 30, 2021 | Aug. 31, 2020 |
Accrued Liabilities | ||
Accrued accounts payable | $ 3,766 | $ 3,054 |
Accrued compensation and payroll | 2,519 | 5,033 |
Accrued taxes | 5,423 | 2,877 |
Total Accrued expenses and other current liabilities | $ 11,708 | $ 10,964 |
Debt (Details)
Debt (Details) - USD ($) | 3 Months Ended | |||
Jul. 15, 2020 | Nov. 30, 2021 | Aug. 31, 2021 | Aug. 31, 2020 | |
Line of Credit Facility, Current Borrowing Capacity | $ 15,000,000 | |||
Construction Loan | 4,671,000 | $ 4,698,000 | ||
Community Bank | ||||
Line of credit long term outstanding | 100,000 | |||
Letter of Credit | ||||
Notes Payable, Noncurrent | 100,000 | |||
Construction Loan Payable | ||||
Line of credit long term outstanding | $ 5,000,000 | |||
Proceeds from Issuance of Long-term Debt | $ 5,000,000 | |||
Debt Instrument maturity date | May 15, 2027 | |||
Amount drawn and converted | $ 4,807,000 | |||
Interest rate | 4.35% | 4.35% | ||
Maximum | ||||
Line of Credit Facility, Maximum Borrowing Capacity | $ 0 | $ 0 | ||
Prime Rate [Member] | Construction Loan Payable | ||||
Fixed rate for conversion | 4.60% | |||
Debt discount (as a percent) | 0.25% |
Earnings per Share (Details)
Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Nov. 30, 2021 | Nov. 30, 2020 | |
EPS: | ||
Net income | $ 6,786 | $ 851 |
Less: accrued preferred stock dividends | (19) | (19) |
Net income attributable to common shareholders | $ 6,767 | $ 832 |
Earnings per common share - basic | $ 1.39 | $ 0.17 |
Earnings per common share - diluted | $ 1.39 | $ 0.17 |
Earnings per Share - Additional
Earnings per Share - Additional Information (Details) - shares | 3 Months Ended | |
Nov. 30, 2021 | Nov. 30, 2020 | |
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||
Antidilutive potential common shares | 40,000 | 40,000 |
Convertible preferred stock (in shares) | 36,000 | 36,000 |
Series A Cumulative Convertible Preferred Stock [Member] | ||
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items] | ||
Convertible preferred stock (in shares) | 36,000 | 36,000 |
Related Party Transactions (Det
Related Party Transactions (Details) - USD ($) | 3 Months Ended | ||
Jul. 26, 2019 | Nov. 30, 2021 | Nov. 30, 2020 | |
Related Party Transaction [Line Items] | |||
Lease term | 10 years | ||
Initial monthly rental | $ 22,600 | ||
Percentage of annual rent increase | 2.50% | ||
Hunter Lease | |||
Related Party Transaction [Line Items] | |||
Initial monthly rental | $ 66,300 | ||
Percentage of annual rent increase | 2.50% | ||
Operating lease expense | $ 209,000 | $ 204,000 | |
Related Party [Member] | |||
Related Party Transaction [Line Items] | |||
Operating lease expense | $ 75,000 | $ 72,000 |
Income Taxes - Additional Infor
Income Taxes - Additional Information (Details) - USD ($) | 3 Months Ended | |
Nov. 30, 2021 | Nov. 30, 2020 | |
Income Taxes | ||
Provision for income taxes | $ 2,389,000 | $ 298,000 |
Expected income tax provision at statutory rate | 26% | 25.90% |
Effective income tax statutory rate | 21% |