-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Aea/ojpzsut3zpwo3VP/DOPOSEp7iwWda2nr/CuoAVpqdqO9AfouiL6M+BpqyVpB ff/m7eji6bCPtT+lhUpwJQ== 0000784539-05-000038.txt : 20050819 0000784539-05-000038.hdr.sgml : 20050819 20050819162152 ACCESSION NUMBER: 0000784539-05-000038 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050629 FILED AS OF DATE: 20050819 DATE AS OF CHANGE: 20050819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EACO CORP CENTRAL INDEX KEY: 0000784539 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592597349 STATE OF INCORPORATION: FL FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14311 FILM NUMBER: 051038861 BUSINESS ADDRESS: STREET 1: 2113 FLORIDA BLVD STREET 2: STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 BUSINESS PHONE: 9042494197 MAIL ADDRESS: STREET 1: 2113 FLORIDA BLVD STE A CITY: NEPTUNE BEACH STATE: FL ZIP: 32266 FORMER COMPANY: FORMER CONFORMED NAME: FAMILY STEAK HOUSES OF FLORIDA INC DATE OF NAME CHANGE: 19920703 10-Q 1 eaco10q2nd05.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter ended June 29, 2005 Commission File No. 0-14311 EACO Corporation (Registrant) Incorporated under the laws of IRS Employer Identification Florida No. 59-2597349 2113 FLORIDA BOULEVARD NEPTUNE BEACH, FLORIDA 32266 Registrant's Telephone No. (904) 249-4197 EACO Corporation (Former Name of Registrant) Indicate by check mark whether the registrant 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes_____ No__X__ Title of each class Number of shares outstanding Common Stock 3,890,101 $.01 par value As of August 12, 2005
EACO Corporation Consolidated Results of Operations (Unaudited) For The Quarters Ended For The Six Months Ended -------------------------------------------------- June 29, June 30, June 29, June 30, 2005 2004 2005 2004 -------------------------------------------------- Revenues: Rental income $32,800 $32,800 $65,600 $65,600 ---------- ----------- ----------- ----------- Total revenues 32,800 32,800 65,600 65,600 ---------- ----------- ----------- ----------- Cost and expenses: Payroll and benefits 6,400 4,600 13,400 11,600 Depreciation and amortization 35,800 48,000 83,100 95,300 Other operating expenses 45,800 50,100 84,300 103,900 General and administrative expenses 190,200 180,400 365,200 354,100 ---------- ----------- ----------- ----------- Total costs and expenses 278,200 283,100 546,000 564,900 ---------- ----------- ----------- ----------- Loss from continuing operations (245,400) (250,300) (480,400) (499,300) Investment gain 2,100 10,800 2,100 10,800 Interest and other income 28,600 19,300 49,500 37,800 Interest expense (34,800) (36,600) (69,700) (73,600) ---------- ----------- ----------- ----------- Loss from continuing operations, before income taxes (249,500) (256,800) (498,500) (524,300) Income tax benefit 213,200 -- 213,200 -- ---------- ----------- ----------- ----------- Loss from continuing operations (36,300) (256,800) (285,300) (524,300) Income (loss) on discontinued operations, net of income tax benefit 2,579,200 (314,600) 3,086,400 (377,800) ---------- ----------- ----------- ----------- Net income (loss) attributable to common shareholders 2,542,900 (571,400) 2,801,100 (902,100) Cumulative preferred stock dividend (19,100) --- (38,300) --- ---------- ----------- ----------- ----------- Net income (loss) available for basic and diluted earnings (loss) per share $2,523,800 ($571,400) $2,762,800 ($902,100) ========== =========== =========== =========== Basic income (loss) per share Continuing operations ($0.01) ($0.07) ($0.08) ($0.14) Discontinued operations 0.66 (0.08) 0.79 (0.10) ---------- ----------- ----------- ----------- Net income (loss) $0.65 ($0.15) $0.71 ($0.24) ========== =========== =========== =========== Basic weighted average common shares outstanding 3,881,900 3,771,000 3,881,900 3,744,000 ========== =========== =========== =========== Diluted income (loss) per share Continuing operations ($0.01) ($0.07) ($0.08) ($0.14) Discontinued operations 0.63 (0.08) 0.78 (0.10) ---------- ----------- ----------- ----------- Net income (loss) $0.62 ($0.15) $0.70 ($0.24) ========== =========== =========== =========== Diluted weighted average common shares outstanding 4,072,900 3,771,000 3,972,800 3,744,000 ========== =========== =========== ===========
See accompanying notes to consolidated financial statements. 2
EACO Corporation Consolidated Balance Sheets (Unaudited) June 29, December 29, 2005 2004 ----------- ------------ ASSETS Current assets: Cash and cash equivalents $628,300 $151,100 Receivables 69,500 81,300 Inventories 6,000 235,200 Prepaid and other current assets 211,500 426,800 Deferred income tax benefit 213,200 --- Assets held for sale 27,448,800 --- ----------- ----------- Total current assets 28,577,300 894,400 Certificate of deposit 369,500 300,000 Property and equipment: Land 588,300 6,967,200 Buildings and improvements 2,942,800 24,933,100 Equipment 2,567,700 11,880,000 Construction in progress --- 138,800 ----------- ----------- 6,098,800 43,919,100 Accumulated depreciation (4,330,800) (18,051,600) ----------- ----------- Net property and equipment 1,768,000 25,867,500 Other assets, principally deferred charges, net of accumulated amortization 73,800 727,100 ----------- ----------- $30,788,600 $27,789,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $17,500 $1,079,400 Securities sold, not yet purchased 64,300 --- Accrued liabilities 57,400 1,778,000 Current portion of workers compensation benefit liability 329,400 569,500 Current portion of long-term debt 105,400 917,200 Current portion of obligation under capital lease --- 77,300 Liabilities associated with assets held for sale 22,152,200 --- ----------- ----------- Total current liabilities 22,726,200 4,421,400 Deferred rent --- 79,200 Deposit liability 47,300 23,300 Workers compensation benefit liability 731,500 628,500 Long-term debt 1,769,100 14,774,000 Deferred gain --- 1,169,400 Obligation under capital lease --- 3,941,400 ----------- ----------- Total liabilities 25,274,100 25,037,200 Shareholders' equity: Preferred stock of $.01 par; authorized 10,000,000 shares; outstanding 40,000 shares at June 29, 2005 and December 29, 2004 400 400 Common stock of $.01 par; authorized 4,000,000 shares; outstanding 3,881,900 shares 38,800 38,800 Additional paid-in capital 10,865,200 10,903,300 Accumulated deficit (5,389,900) (8,190,700) ----------- ----------- Total shareholders' equity 5,514,500 2,751,800 ----------- ----------- $30,788,600 $27,789,000 =========== ===========
See accompanying notes to consolidated financial statements. 3
EACO Corporation Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended ------------------------ June 29, June 30, 2005 2004 ---------- ----------- Operating activities: Net income (loss) $2,801,100 ($902,100) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 987,100 981,900 Asset valuation charge --- 594,200 Deferred income tax benefit (3,061,800) --- Net realized (gains) losses on investments (2,200) (700) Amortization of loan fees 48,000 40,600 Loss on disposition of property held for sale --- 32,100 Amortization of deferred gain (40,300) (35,500) Loss on disposition of property and equipment 27,400 32,100 (Decrease) increase in: Receivables 11,800 (95,900) Inventories (16,300) 45,800 Prepaids and other current assets 800 (46,100) Other assets (15,600) (8,400) Increase (decrease) in: Accounts payable 84,400 (67,200) Construction accounts payable --- 154,800 Accrued liabilities (276,900) 9,700 Deferred gain 66,000 --- Deferred rent 15,900 15,900 Deposit liability 24,000 (8,000) Workers compensation benefit liability (137,100) (34,400) ---------- ----------- Net cash provided by operating activities 516,300 708,800 ---------- ----------- Investing activities: Purchase of investments (69,500) (1,700,000) Proceeds from sale of investments --- 184,600 Proceeds from securities sold not yet purchased 66,500 57,000 Net proceeds from sale of property held for sale --- 1,552,900 Store cash within assets held for sale (23,200) --- Capital expenditures (987,800) (2,102,200) ---------- ----------- Net cash used in investing activities (1,014,000) (2,007,700) ---------- ----------- Financing activities: Proceeds from sale-leaseback 2,600,000 --- Payments on long-term debt (1,404,000) (1,104,000) Payment of sale-leaseback costs (160,000) --- Preferred stock dividend (38,300) --- Payments on capital lease (22,800) (15,100) Proceeds from the issuance of common stock --- 175,300 ---------- ----------- Net cash provided by (used in) financing activities 974,900 (943,800) ---------- ----------- Net increase (decrease) in cash and cash equivalents 477,200 (2,242,700) Cash and cash equivalents - beginning of period 151,100 2,287,800 ---------- ----------- Cash and cash equivalents - end of period $628,300 $45,100 ========== =========== Noncash investing and financing activities: Net change in unrealized gain $0 $12,200 ========== =========== Supplemental disclosures of cash flow information: Cash paid during the six months for interest $868,900 $821,400 ========== =========== Building acquired under capital lease $1,475,000 $1,762,300 ========== ===========
See accompanying notes to consolidated financial statements. 4 PART I: FINANCIAL INFORMATION Item 1: Financial Statements EACO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 29, 2005 (Unaudited) Note 1. Basis of Presentation The consolidated financial statements include the accounts of EACO Corporation (the "Company"), (formerly Family Steak Houses of Florida, Inc.) and its wholly-owned subsidiary. All significant intercompany profits, transactions and balances have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the interim financial information instructions to Form 10-Q, and do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included. Operating results for the thirteen and twenty-six week periods ended June 29, 2005 are not indicative of the results that may be expected for the fiscal year ending December 28, 2005. For further information, refer to the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2004. Note 2. Discontinued Operations On February 23, 2005, the Company announced that it had entered into an asset purchase agreement under which it would sell sixteen of its restaurants to Banner Buffets, LLC ("Banner" or "the Buyer"). The transaction closed on June 30, 2005, the first day of the Company's third quarter. The total purchase price for the sixteen restaurant businesses, premises, equipment and other assets used in restaurant operations was approximately $29,950,000, consisting of $25,950,000 in cash at closing and a 5 promissory note for $4 million. The note accrues interest at 8% payable monthly and is secured by restaurant equipment valued at less than $1 million. At the present time, management does not have sufficient information to evaluate the true value of the $4 million note. The Buyer also assumed obligations under capital leases of approximately $4.5 million. Due to the asset sale, the Company has exited the restaurant business and the results of the sixteen restaurants sold have been segregated from continuing operations in the Consolidated Results of Operations and reported as Income (Loss) from Discontinued Operations for all periods presented. The assets and liabilities associated with the restaurants sold have been classified as "Assets Held for Sale" and "Liabilities Associated with Assets Held for Sale" on the Consolidated Balance Sheet as of June 29, 2005. These classifications were not made prior to the period ended June 29, 2005 due to substantial uncertainty about the Buyer's ability to obtain the financing necessary to complete the transaction, which was not resolved until a few days prior to the June 30, 2005 closing. Operating results of the discontinued operations are summarized below: For the quarters ended For the six months ended June 29, 2005 June 30, 2004 June 29, 2005 June 30, 2004 ------------------------------------------------------------- Revenues Sales $9,066,900 $9,959,200 $19,093,500 $20,218,500 Vending revenue 19,000 47,600 67,800 96,600 ---------- ---------- ---------- ---------- Total revenues 9,085,900 10,006,800 19,161,300 20,315,100 ---------- ---------- ---------- ---------- Costs and expenses Food and beverage 3,568,300 3,840,600 7,315,700 7,691,900 Payroll and benefits 2,764,900 3,133,900 5,568,000 6,020,400 Depreciation and amortization 450,900 443,300 904,000 886,600 Other operating expenses 1,583,900 1,739,000 3,105,500 3,116,400 General and administrative expenses 489,000 347,300 924,800 801,200 Franchise fees 117,500 295,600 291,700 666,800 Asset valuation charge --- --- --- 594,200 Loss on store closings and disposal of assets 23,200 58,600 42,400 93,000 ---------- --------- ---------- ---------- Total costs and expenses 8,997,700 9,858,300 18,152,100 19,870,500 ---------- ---------- ----------- ---------- Operating income 88,200 148,500 1,009,200 444,600 Interest and other income (expense) 48,800 (49,100) 51,300 (34,400) Loss on sale of property --- (32,100) --- (32,100) Interest expense (406,400) (381,900) (822,700) (755,900) ---------- ---------- ---------- ---------- (Loss) income from discontinued operations before income taxes (269,400) (314,600) 237,800 (377,800) Income tax benefit 2,848,600 --- 2,848,600 --- ---------- ---------- ----------- ----------- Income (loss) from discontinued operations, net of income tax benefit $2,579,200 ($314,600) $3,086,400 ($377,800) ========== ========== =========== ===========
6 The consolidated balance sheet as of June 29, 2005 includes assets and liabilities of discontinued operations as follows: June 29, 2005 -------------- Assets Current assets $ 483,300 Property and equipment, net 23,543,300 Deferred income tax benefit 2,848,600 Other assets 573,600 ----------- Total assets held for sale $27,448,800 ----------- Liabilities Current liabilities $2,590,000 Deferred rent 95,100 Long-term debt 12,412,700 Obligations under capital lease 5,472,200 Deferred gain 1,582,200 ---------- Total liabilities associated with assets held for sale $22,152,200 ----------- Note 3. Income Taxes Income taxes are calculated using the liability method specified by SFAS No. 109 "Accounting for Income Taxes". Valuation allowances are provided against deferred tax assets if it is considered "more likely than not" that some portion or the entire deferred tax asset will not be realized. As of December 29, 2004, a valuation allowance was provided for the entire balance of net deferred tax assets. Management continuously evaluates the deferred tax valuation allowance to determine what portion of the deferred tax asset, if any, may be realized in the future. Management's evaluation includes, among other things, such factors as the history of operating results, a substantial history of operations upon which to base a forecast and known transactions that will generate enough taxable income to realize the deferred tax assets. The June 30, 2005 asset sale (see Note 2. Discontinued Operations) resulted in sufficient income to allow management to determine that it is now more likely than not that certain of the deferred tax assets will be realized. As a result, the deferred tax assets and liabilities as of June 29, 2005 are reinstated on the balance sheet, the valuation allowance is reversed related to those deferred tax assets that will be 7 realized in 2005 and the resulting income tax benefit is recorded in the three months ended June 29, 2005. The net deferred tax assets and income tax benefit have been allocated to the assets and liabilities and income tax benefit of continuing operations and assets held for sale and income tax benefit of discontinued operations in the accompanying June 29, 2005 consolidated balance sheet and in the consolidated statement of operations for the three and six months ended June 29, 2005 as follows: Deferred tax assets, current $213,200 Income tax benefit, continuing operations $213,200 Assets held for sale $2,848,600 Income tax benefit, discontinued operations $2,848,600 The components of deferred taxes at June 29, 2005 and December 29, 2004 are summarized below: June 29, 2005 December 29, 2004 -------------- ----------------- Deferred tax assets: Net operating loss $2,700,300 $2,270,200 Federal and state tax credits 589,200 589,200 Accruals not currently deductible 410,500 458,800 Capital loss carryforward 248,800 248,800 Unearned revenue, previously taxed 595,400 466,700 ---------- ---------- 4,544,200 4,033,700 Valuation allowance (317,600) (3,281,500) ---------- ---------- Total deferred tax assets 4,226,600 752,200 ---------- ---------- Deferred tax liabilities: Excess of tax over book depreciation 1,164,800 752,200 ---------- ---------- Total deferred tax assets $3,061,800 $--- ========== ==========
8 Note 4. Earnings (loss) Per Share The following table provides details of the calculation of basic and diluted income per common share: Quarter Ended Six Months Ended June 29, 2005 June 29, 2005 --------------------- ---------------------- 2005 2004 2005 2004 ---------------------- ---------------------- Loss from continuing operations $(36,300) $(256,800) $(285,300) $(524,300) Income (loss) from discontinued operations 2,579,200 (314,600) 3,086,400 (377,800) ---------- ----------- ---------- ----------- Net income $2,542,900 $(571,400) $2,801,100 $(902,100) ---------- ----------- ---------- ----------- Shares used for determining basic earning per common share 3,881,900 3,771,000 3,881,900 3,744,000 Dilutive effect of: Stock options 1,800 --- --- --- Convertible Preferred Stock 189,200 --- 90,900 --- ---------- ---------- ----------- ----------- Shares used for determining diluted earnings per common share 4,072,900 3,771,000 3,972,800 3,744,000 ---------- ---------- ----------- ----------- Basic earnings (loss) per common share: Continuing operations $(0.01) $(0.07) $(0.08) $(0.14) Discontinued operations 0.66 (0.08) 0.79 (0.10) ---------- ---------- ----------- ----------- Net income $0.65 $(0.15) $0.71 $(0.24) ========== ========== =========== =========== Diluted earnings (loss) per common share: Continuing operations $(0.01) $(0.07) $(0.08) $(0.14) Discontinued operations 0.63 (0.08) 0.78 (0.10) ---------- ---------- ----------- ----------- Net income $0.62 $(0.15) $0.70 $(0.24) ========== ========== =========== ===========
Due to the Company's net losses for the thirteen and twenty-six weeks ended June 30, 2004, potentially dilutive securities totaling 177,700 shares for both periods are antidilutive and have been excluded from the computation of diluted earnings per share for those periods. Note 5. Other Assets Other assets consist principally of deferred charges, which are amortized on a straight-line basis. Deferred charges and related amortization periods are as follows: financing costs - term of the related loan, and initial franchise rights - 18 months beginning January 1, 2004 in connection with the Company's decision to terminate its franchise agreement. The gross carrying amount of the deferred financing costs was $841,900 and $878,400 as of June 29, 2005 and December 29, 2004, respectively. Accumulated amortization related to deferred financing costs was $252,600 and $241,100 as of June 29, 2005 and December 29, 2004, respectively. Amortization expense was $10,800 and $28,600 for the three-month periods ended June 29, 9 2005 and June 30, 2004, respectively. Amortization expense was $48,000 and $40,600 for the six-month periods ended June 29, 2005 and June 30, 2004, respectively. Amortization expense for each of the next five years is expected to be $3,000. The reduction in amortization compared to prior periods is due to the sale of restaurants described in Note 2 above. The gross carrying amount and accumulated amortization of the initial franchise rights was $299,700 and $252,400, respectively, as of December 29, 2004. Amortization expense was $23,100 and $38,800 for the three-month periods ended June 29, 2005 and June 30, 2004, respectively. Amortization expense was $47,300 and $66,500 for the six-month periods ended June 29, 2005 and June 30, 2004, respectively. All franchise rights were fully amortized as of June 30, 2005, in connection with the expiration of the franchise agreement. All franchise rights amortization expense has been presented as part of income(loss) on discontinued operations for the three and six month periods ended June 29, 2005 and June 30, 2004, respectively. Note 6. Sale Leaseback Transaction On December 30, 2004, the Company completed a sale leaseback transaction to refinance one of its restaurants. The Company sold the property for $2.6 million and paid off its existing mortgage of approximately $1.1 million on the property. The leaseback of the building is accounted for as a capital lease and the leaseback of the land is accounted for as an operating lease, with a deferred gain of $387,100 being recognized over the twenty-year life of the lease. The lease requires annual payments beginning at $260,000, with various increases over the life of the lease. This property was included in the asset sale described in Note 2 above, and has been classified under "Assets Held for Sale" for the period ended June 29, 2005. Note 7. Reclassifications Certain items in the prior period financial statements have been reclassified to conform to the 2005 presentation. Note 8. Stock Based Compensation The Company accounts for stock-based compensation utilizing the intrinsic value method under Accounting Principles Board No. 25 (APB 25), "Accounting for Stock Issued to Employees". The Company's long-term incentive plan provides for the grant of 10 stock options and restricted stock. The exercise price of each option equals the market price of the Company's stock on the date of the grant. Options vest in one-quarter increments over a four-year period starting on the date of the grant. An option's maximum term is ten years. See Note 9 "Common Shareholders' Equity" in the Company's Annual Report for the year ended December 29, 2004 for additional information regarding the Company's stock options. Pursuant to the disclosure requirements of Statement of Financial Accounting Standards "SFAS" 148, "Accounting for Stock-Based Compensation - Transition and Disclosure". the following table provides an expanded reconciliation for all periods presented: Quarters Ended Six Months Ended June 29, 2005 June 30, 2004 June 29, 2005 June 30, 2004 ------------------ ---------------- Net income (loss), as reported $2,542,900 $(571,400) $2,801,100 $(902,100) Add: Stock based compensation expense included in net income, net of tax --- --- --- --- Deduct: Total stock-based compensation expense determined under fair value, net of tax --- (800) --- (1,600) ---------- ---------- ----------- --------- Pro forma net earnings (loss) $2,542,900 $(572,200) $2,801,100 $(903,700) Undeclared cumulative preferred Stock dividend (19,100) --- (38,300) --- ========= ========= ========== ========== Income (loss) per share $0.62 $(0.15) $0.70 $(0.24) Basic, as reported $0.65 $(0.15) $0.71 $(0.24) Basic, pro forma $0.65 $(0.15) $0.71 $(0.24) Diluted, as reported $0.62 $(0.15) $0.70 $(0.24) Diluted, pro forma $0.62 $(0.15) $0.70 $(0.24)
Note 9. Preferred Stock The Company has outstanding 36,000 shares of Series A Cumulative Convertible Preferred Stock with a dividend rate of 8.5%. The preferred shares have a liquidation preference of $25 per share of preferred stock into shares of the Company's common stock at a conversion price of $0.90 per share. Accordingly, the holder of the preferred shares could purchase up to one million shares of the Company's common stock at $0.90 per share, which could potentially dilute basic earnings per share in the future. For the three and six months ended June 29, 2005, the Board of Directors declared and the Company paid dividends in the amount of $19,100 and $38,300 respectively. In the quarter ended June 29, 2005, the Board of Directors declared and the Company paid dividends in the amount of $19,100. The balance of undeclared cumulative preferred dividends at June 29, 2005 was $19,100. 11 Note 10. Legal Proceedings In connection with the asset sale described in Note 2 to the financial statements, a broker has demanded a commission payment of $3.5 million. The Company has filed suit against the broker in an effort to expedite a resolution of the claim. The Company agreed to place $400,000 in escrow in connection with the lawsuit. In addition, in August 2005, the Company was sued by another broker who claims that a commission of $749,000 is payable to him as a result of the asset sale. The Company plans to vigorously defend both of these claims. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies and Use of Estimates The Company's accounting policy for the recognition of impairment losses on long-lived assets is considered critical. The Company's policy is to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purpose of the impairment review, assets are grouped on a restaurant-by-restaurant basis. The recoverability of the assets is measured by a comparison of the carrying value of each restaurant's assets to future net cash flows expected to be generated by such restaurant's assets. If such assets are considered impaired, the impairment to be recognized is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets. The Company sometimes invests a portion of its available cash in marketable securities via an online investment account. The investment account is a margin account which allows the Company to purchase securities using margin debt. In determining whether to engage in transactions on margin, management evaluates the risk of the proposed transaction and the relative returns offered thereby. If the market value of securities purchased on margin were to decline below certain levels, the Company would be required to use additional cash from its operating account to fund a margin call in its investment account. Management reviews the status of the investment account on a regular basis and analyzes such margin positions and adjusts purchase and sale transactions as necessary to ensure such margin calls are not likely. When securities are purchased on margin, the resulting liability is included on the Consolidated Balance Sheet as 12 "Margin Debt". Management does not expect to effect any transactions using margin debt in 2005. One of the Company's investment strategies involves short-sales of marketable securities. The risk and expected return on these investments are evaluated through the Company's expertise in certain industries, and decisions on timing to cover short positions are made based on an ongoing detailed review and evaluation of each short position. Short-sale transactions are accounted for as a liability entitled "Securities Sold, Not Yet Purchased." They are adjusted to current market value at the end of each quarter, and the associated gain or loss is recognized in the statement of operations. The preparation of EACO Corporation's consolidated financial statements requires the Company to make estimates, assumptions and judgments that affect the Company's assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. The Company bases these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information it believes are reasonable. Actual results may differ from these estimates under different conditions. For a full description of the Company's critical accounting policy, see Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2004 Annual Report on Form 10-K. Results of Operations Quarter Ended June 29, 2005 versus June 30, 2004 Continuing Operations As described in Note 2 above, the Company exited the restaurant business through the sale of its operating restaurants to Banner on June 30, 2005. The Company still owns two restaurant locations which it leases to other operators and has two leased restaurant locations sub-leased to other operators. In addition, the Company maintained its corporate office, although with a substantial reduction in number of people and total overhead. These items presently comprise the Company's continuing operations. The Company had a loss from continuing operations before income taxes of $249,500 for the second quarter of 2005 compared to a loss of $256,800 for the second quarter of 2004. The Company recognized an income tax benefit of $213,200 for the second 13 quarter of 2005, due to the asset sale described in Note 2 above. The income tax benefit resulted from the partial reversal of a valuation allowance which had previously offset the Company's deferred tax assets - See Note 3 above. Net loss from continuing operations net of the income tax benefit for the was quarter ended June 29, 2005 $36,300. The effective income tax rate for the quarter ended June 30, 2004 was 0.0%. Discontinued Operations During the first quarter of 2005, the Company entered into an agreement to sell all of its operating restaurants to Banner. The results of discontinued operations reflect the activities of these sold restaurants. The following discusses the comparative results of the sold restaurants. Total sales decreased during the second quarter of 2005 to $9,066,900 from $9,959,200 or 9.0%, due to store closures and a decline in same-store sales. Same-store sales (average unit sales in restaurants that have been open for at least 18 months and operating during comparable weeks during the current and prior year) in the second quarter of 2005 decreased 3.4% from the same period in 2004, compared to an increase of 9.9% in the second quarter of 2004 as compared to 2003. The decrease in same-store sales resulted primarily from unusually high sales comparisons from the prior year, when the Company converted two restaurants to its Whistle Junction concept and experienced large sales increases. In total, food and beverage, payroll and benefits, depreciation and amortization and other operating expenses as a percentage of sales increased to 92.4% or $8,368,000 in the second quarter of 2005 from 92.1% or $9,156,800 in the same quarter of 2004. Food and beverage costs as a percentage of sales increased to 39.4% in the second quarter of 2005 from 38.6% in the same period of 2004 primarily as a result of higher beef costs in 2005 and enhanced menus initiated by the Company in connection with the conversions to Whistle Junction. Payroll and benefits as a percentage of sales decreased to 30.5% in the second quarter of 2005 from 31.5% in the same quarter of 2004 due to higher initial payroll costs at converted and newly opened Whistle Junction restaurants in 2004. Other operating expenses as a percentage of sales was 17.5% in the second quarter of 2005 and in 2004. Depreciation and 14 amortization as a percentage of sales increased to 5.0% in 2005 from 4.5% in 2004. General and administrative expenses as a percentage of sales increased to 5.4% in the second quarter of 2005, from 3.5% in the second quarter of 2004, primarily due to legal costs associated with the asset sale. For the quarter ended June 29, 2005, the Company recognized an income tax benefit from discontinued operations of $2,848,600, due to the asset sale described in Note 2 above. The effective income tax rate for the quarter ended June 30, 2004 was 0.0% Net income from discontinued operations for the second quarter of 2005 was $2,579,200, compared to a net loss of $314,600 in the second quarter of 2004. Net income per share from discontinued operations was $0.63 for the second quarter of 2005, compared to net loss per share of $0.08 for the second quarter of 2004. Six Months Ended June 29, 2005 versus June 30, 2004 Continuing Operations The Company had losses from continuing operations before income taxes of $498,500 for the six months ended June 29, 2005 compared to the $524,300 for the same period in 2004. The Company recognized an income tax benefit of $213,200 for the six months ended June 29, 2005, due to the asset sale. Net loss from continuing operations net of the income tax benefit was $285,300, compared to $524,300 in 2004. Discontinued Operations For the six months ended June 29, 2005, total sales were $19,093,500 compared to $20,218,500 for the same period in 2004. Same-store sales decreased 1.4% for the six months ended June 29, 2005 from the same period in 2004. Food and beverage costs as a percentage of sales for the six month periods ended June 29, 2005 and June 30, 2004 were 38.3% and 38.0% respectively. Higher beef prices in 2005 were offset by sales price increases implemented by the Company since 2004. Payroll and benefits as a percentage of sales decreased to 29.2% in 2005 from 29.8% in 2004, due to higher costs in 2004 associated with the opening of Whistle Junction restaurants. 15 For the six months ended June 29, 2005, other operating expenses as a percentage of sales increased to 16.3% from 15.4% in 2004, primarily due to higher advertising costs. Depreciation and amortization as a percentage of sales increased to 4.7% for the six-month period ended June 29, 2005, compared to 4.4% in 2004. General and administrative expenses for the six-month period ended June 29, 2005 increased to 4.8% from 4.0% for the period ended June 30, 2004, due to legal costs from the asset sale. Interest expense increased for the first six months to $822,700 from $755,900 for the same period in 2004 due to interest associated with two new capital leases. The Company recognized a non-cash asset valuation charge of $594,200 in 2004 in accordance with SFAS No. 144, "Accounting for the Impairment of or Disposal of Long-Lived Assets." The charge was based on the write-off of the net book value of the leasehold improvements from the closure of a leased restaurant. The restaurant was an under-performing restaurant, and the Company was able to assign the lease to another company. The Company recognized an income tax benefit of $2,848,600 for the six months ended June 29, 2005, due to the asset sale. The effective income tax rate for the six months ended June 30, 2004 was 0.0%. Net income from discontinued operations, net of income tax benefit, for the six months ended June 29, 2005 was $3,086,400 or $0.78 per share, compared to a net loss of $377,800, or $0.10 per share for the same period in 2004. Due to the sale of the Company's operating stores described in Note 2, operating results for the three and six months ended June 29, 2005 are not indicative of the results that may be expected for the fiscal year ending December 28, 2005. Liquidity and Capital Resources Historically, substantially all of the Company's revenues were derived from cash sales. Inventories were purchased on credit and were rapidly converted to cash. Therefore, the Company has not carried significant receivables or inventories and, other than repayment of debt, working capital requirements for continuing operations have not been significant. On June 30, 2005, the Company completed the sale of all of its operating restaurants. The total purchase price was 16 approximately $29,950,000, consisting of $25,950,000 in cash and a promissory note for $4 million. The note requires monthly interest payments at a rate of 8.0% through June 30, 2007, when the first principal payment of $1.5 million is due. The Company paid off $12,412,700 in loans due to GE Capital with proceeds from the asset sale. In addition to the cash proceeds, the Buyer assumed $4,509,100 in capital lease obligations. At June 29, 2005, the Company had a working capital surplus of $5,851,100 compared to a working capital deficit of $3,527,000 at December 29, 2004. The working capital increase was due primarily to the net effect of reclassifying assets held for sale and the liabilities associated with assets held for sale as both current assets and current liabilities, respectively. Cash provided by operating activities decreased to $516,300 in the second quarter of 2005 from $708,800 in the second quarter of 2004, primarily due to timing differences in the payments of accrued liabilities. The Company spent $987,800 in the first six months of 2005 for property and equipment. On December 30, 2004, the Company completed a sale leaseback transaction to refinance one of its restaurants. The Company sold the property for $2.6 million and paid off its existing mortgage of approximately $1.1 million on the property. The leaseback of the building is accounted for as a capital lease and the leaseback of the land is accounted for as an operating lease, with the deferred gain being recognized over the twenty- year life of the lease. The lease requires annual payments beginning at $260,000, with various increases over the life of the lease. This property was included in the asset sale completed June 30, 2005 (see Note 2 above). In June 2004, the Company sold 145,833 shares of its Common Stock directly to Bisco Industries, Inc. Profit Sharing and Savings Plan for a total purchase price of $175,000 cash. In September 2004, the Company sold 36,000 shares of the Company's newly authorized Series A Cumulative Convertible Preferred Stock at a price of $25 per share, for a total purchase price of $900,000 cash. The Preferred Stock was sold to the Company's Chairman. Dividends are paid quarterly when declared by the Company's Board of Directors. The Company paid a declared dividend of $19,100 during the second quarter of 2005. Undeclared dividends as of June 29, 2005 were $19,100. 17 The Company is required to pledge collateral for its workers' compensation self insurance liability with the Florida Self Insurers Guaranty Association ("FSIGA"). The Company increased this collateral by $69,500 during the first quarter of 2005, and now has a total of $1.37 million pledged collateral. Of this amount, Bisco Industries, Inc. ("Bisco") provides $1 million of this collateral. EACO Corporation's Chairman of the Board of Directors, Glen Ceiley, is the President of Bisco. The Company may be required to increase this collateral pledge from time to time in the future, based on its workers' compensation claim experience and various FSIGA requirements for self-insured companies. Despite the sale of the Company's restaurants, the workers' compensation will remain an ongoing liability for the Company until all claims are paid, which will likely take several years. However, the amount of the liability will decline as these claims are paid and no new claims will be incurred. In 2004 and 2005, the Company paid franchise fees of 4% of gross sales for Ryan's restaurants only. Total franchise fees paid in the second quarter of 2005 were $117,500. The franchise agreement with Ryan's expired June 30, 2005, which eliminated any obligation to pay franchise fees after that date. The Company sold four restaurants in 2004, resulting in total net proceeds of $3,144,500. The Company used these proceeds to pay off mortgages on the four restaurants totaling approximately $1,816,000. Total net gains on sales of property in 2004 were $62,700. The preceding discussion of liquidity and capital resources contains certain forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and in addition to the factors discussed herein, among the other factors that could cause actual results to differ materially are the following: failure of facts to conform to necessary management estimates and assumptions; the willingness of GE Capital or other lenders to extend financing commitments; the economic conditions in the new markets into which the Company expands; business conditions, such as inflation or a recession, and growth in the general economy; and other risks identified from time to time in the Company's SEC reports, registration statements and public announcements. 18 Subsequent Events On February 23, 2005, the Company announced that it had entered into an asset purchase agreement under which it would sell all sixteen of its operating restaurants to Banner Buffets, LLC ("Buyer"). This transaction closed during the Company's third quarter, on June 30, 2005. The total purchase price for the restaurant businesses, premises, equipment and other assets used in restaurant operations was approximately $29,950,000, consisting of $25,950,000 in cash at closing and a promissory note for $4 million. The note accrues interest at 8%, payable monthly and is secured by restaurant equipment valued at less than $1 million. At the present time, the Company does not have sufficient information to evaluate the true value of the $4 million note. The Buyer also assumed obligations under capital leases of approximately $4.5 million. EACO Corporation continues to exist with limited business operations, and the Company plans to seek out other business opportunities. The Company assigned approximately $6.6 million of the cash proceeds from the sale to a third party intermediary bank for the purpose of exploring a like-kind exchange (LKE) transaction under Section 1031 of the Internal Revenue Code, which if accomplished, would result in the deferral of an estimated $1 million in income taxes resulting from the asset sale in the third quarter of 2005. The Company identified three properties on August 12, 2005 for possible acquisition in connection with the LKE strategy. There can be no assurance that any of these transactions will be successfully completed. However, if the Company does purchase one of these three properties, the Company would then consider borrowing against these properties and using the cash proceeds to acquire an operating business or for other investment strategies. Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK The only significant change in the Company's exposure to market risk during the first six months of 2005 was the reduction in debt discussed in Liquidity and Capital Resources above, which reduced the Company's market risk exposure. For discussion of the Company's exposure to market risk, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2004. 19 Item 4. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. As required by Rule 13a-15 under the Securities Exchange Act of 1934 (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 management, including the Company's Chairman (who serves as the principal executive officer), President (who serves as the principal operating officer), and another member of the Board of Directors. Based upon that evaluation, the Company's Chairman and President have concluded that the Company's disclosure controls and procedures are effective in alerting them to material information regarding the Company's financial statement and disclosure obligation in order to allow the Company to meet its reporting requirements under the Exchange Act in a timely manner. (b) Changes in internal control. There have been no changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, except for a significant reduction in accounting staff, including the Company's Director of Finance, subsequent to the asset sale completed on June 30, 2005, the first day of the Company's third quarter. The Company is in the process of evaluating these controls in light of the reduction in business operations and staff, and plans to make any necessary changes to ensure that internal controls continue to be effective. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In connection with the asset sale described in Note 2 to the Financial Statements, a broker has demanded a commission payment of $3.5 million. The Company has filed suit against the broker in an effort to expedite a resolution of the claim. The Company agreed to place $400,000 in escrow in connection with the lawsuit. In addition, in August 2005, the Company was sued by another broker who claims that a commission of $749,000 is payable to him as a result of the asset sale. The Company plans to vigorously defend both of these claims. 20 ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) On June 23, 2005, the Company held its annual meeting of shareholders to elect directors to serve for the upcoming year. (b) The following table sets forth the number of votes for and against each of the nominees for director. Nominee For Withheld Glen F. Ceiley 3,658,927 21,538 Jay Conzen 3,658,383 22,488 Stephen Catanzaro 3,659,333 21,538 William Means 3,659,133 21,738 The Company is unable to determine the number of broker non-votes. Glen F. Ceiley, Jay Conzen, Stephen Catanzaro and William Means were elected as directors by the affirmative vote of a majority of the 3,881,901 shares of the Company's common stock represented in person or by proxy at the annual meeting of shareholders. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are filed as part of the report on Form 10-Q. No. Exhibit 3.01 Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibits 3.01 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 21 3.02. Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.02 to the Company's Registration Statement on Form S-1 Registration No. 33-1887, is incorporated herein by reference.) 3.03. Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.03 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.04. Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.04 to the Company's Registration Statement on Form S-1, Registration No. 33-1887, is incorporated herein by reference.) 3.05. Amended and Restated Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 4 to the Company's Form 8-A, filed with the Commission on March 19, 1997, is incorporated herein by reference.) 3.06. Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3 to the Company's Form 8-A filed with the Commission on March 19, 1997, is incorporated herein by reference.) 3.07. Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.08 to the Company's Annual Report on Form 10-K filed with the Commission on March 31, 1998, is incorporated herein by reference.) 3.08. Amendment to Bylaws of Family Steak Houses of Florida, Inc. (Exhibit 3.08 to the Company's Annual Report on Form 10-K filed with the Commission on March 15, 2000, is incorporated herein by reference.) 3.09 Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc. (Exhibit 3.09 to the Company's Annual Report on Form 10-K filed with the Commission on March 29, 2004 is incorporated herein by reference.) 3.10. Articles of Amendment to the Articles of Incorporation of Family Steak Houses of Florida, Inc., changing the name of corporation to EACO Corporation. 22 31.1 Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Chief Executive Officer certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K None. 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) /s/ Edward B. Alexander Date: August 18, 2005 Edward B. Alexander President / Chief Operating Officer 23 Exhibit 31.1 CERTIFICATIONS I, Edward B. Alexander, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EACO Corporation. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent 24 fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 18, 2005 /s/ Edward B. Alexander Edward B. Alexander President / Chief Operating Officer Date: August 18, 2005 /s/ Edward B. Alexander Edward B. Alexander Principal Financial Officer 25 Exhibit 32.1: Certification of Periodic Reports CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the EACO Corporation's (the "Company") Quarterly Report on Form 10-Q for the period ending June 29, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward B. Alexander, Chief Operating Officer/President of the Company and Principal Financial Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 18, 2005 By:/s/ Edward B. Alexander Edward B. Alexander Chief Operating Officer/ President Date: August 18, 2005 By:/s/ Edward B. Alexander Edward B. Alexander Principal Financial Officer 26 EX-31 2 eacoex3112nd05.txt Exhibit 31.1 CERTIFICATIONS I, Edward B. Alexander, certify that: 1. I have reviewed this quarterly report on Form 10-Q of EACO Corporation. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have; a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent 1 fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls over financial reporting. Date: August 18, 2005 /s/ Edward B. Alexander Edward B. Alexander President / Chief Operating Officer Date: August 18, 2005 /s/ Edward B. Alexander Edward B. Alexander Principal Financial Officer 2 EX-32 3 eacoex3212nd05.txt Exhibit 32.1: Certification of Periodic Reports CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the EACO Corporation's (the "Company") Quarterly Report on Form 10-Q for the period ending June 29, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Edward B. Alexander, Chief Operating Officer/President of the Company and Principal Financial Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that,: (1). The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2). The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 18, 2005 By:/s/ Edward B. Alexander Edward B. Alexander Chief Operating Officer/ President Date: August 18, 2005 By:/s/ Edward B. Alexander Edward B. Alexander Principal Financial Officer 2 -----END PRIVACY-ENHANCED MESSAGE-----