UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
For the fiscal year ended AUGUST 31,
2023
Or
For the Transition period from _________ to
_________________
Commission File Number: 000-19954
JEWETT-CAMERON TRADING CO LTD
(Name of registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number 503-647-0110
Securities registered pursuant to Section 12(b)
of the Act:
Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, no par value JCTCF NASDAQ Capital Market
Securities registered
pursuant to Section 12(g) of the Act:
None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act ☐ Yes ☒ No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☐ Yes ☒
No
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve 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 ☐ No
Indicate by check
mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
☒
Yes ☐ No
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller Reporting Company ☒
Emerging Growth Company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.. ☐ Yes ☐
No
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☐
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the fi ling reflect the correction of an error to previously issued financial statements. ☐
Indicate
by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
☐
Yes ☒ No
State the aggregate
market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s
most recently completed second fiscal quarter:
February 28, 2023 =
$13,202,420
Indicate the number
of shares outstanding of each of the registrant’s classes of common stock, as of November 27, 2023: 3,498,899
Jewett-Cameron Trading Company Ltd.
Form 10-K Annual Report
Fiscal Year Ended August 31, 2023
TABLE OF CONTENTS
PART I
Page
Item 1. Business 1
Item 1A. Risk Factors 5
Item 1B. Unresolved Staff Comments 7
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Mine Safety Disclosures 8
PART II
Item 6. [Reserved] 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 17
Item 8. Financial Statements and Supplemental Data 17
Item 9A. Controls and Procedures 36
Item 9B. Other Information 36
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 36
PART III
Item 10. Directors, Executive Officers and Corporate Governance 37
Item 11. Executive Compensation 41
Item 14. Principal Accounting Fees and Services 44
PART IV
Item 15. Exhibits, Financial Statement Schedules 45
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking
statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by
the use of words like “plans”, “expects”, “aims”, “believes”, “projects”,
“anticipates”, “intends”, “estimates”, “will”, “should”, “could”
and similar expressions in connection with any discussion, expectation, or projection of future operating or financial performance, events
or trends. Forward-looking statements are based on management's current expectations and assumptions, which are inherently subject to
uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from
these expectations and assumptions due to changes in global political, economic, business, competitive, market, regulatory and other factors.
We undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future
developments or otherwise.
These factors include, but are not limited to the
fact that the Company is in a highly competitive business and may seek additional financing to expand its business, and are set forth
in more detail elsewhere in this Annual Report, including in the sections, ITEM 1A, “Risk Factors”, and ITEM 7, “Management's
Discussion and Analysis of Financial Condition and Results of Operations”.
Introduction
Jewett-Cameron Trading Company Ltd. is organized under
the laws of British Columbia, Canada. In this Annual Report, the “Company”, “we”, “our” and “us”
refer to Jewett-Cameron Trading Company Ltd. and its subsidiaries.
The Company’s operations are classified into
three reportable operating segments and the parent corporate and administrative segment, which were determined based on the nature of
the products offered along with the markets being served. The segments are as follows:
· Industrial wood products
· Pet, Fencing and Other
· Seed processing and sales
· Corporate and administration
Effective September 1, 2013, the Company reorganized
certain of its subsidiaries. Jewett-Cameron Lumber Corporation (“JCLC”) was changed to JC USA Inc. (“JC USA”),
which has the following three wholly-owned subsidiaries.
The industrial wood products segment reflects the
business conducted by Greenwood Products, Inc. (“Greenwood”). Greenwood is a processor and distributor of industrial wood
products. A major product category is treated plywood that is sold to the transportation industry.
The pet, fencing and other segments reflect the business
of the Jewett-Cameron Company (“JCC”). JCC is a wholesaler of products based in these categories. Pet products range from
enclosures/kennels of varying types and construction primarily out of metal, to items that support the pet “home” such as
beds, bowls and compostable dog waste bags. Fencing and containment products include such products as proprietary gate and fencing components,
including trademarked and patented post systems, wood and other fencing infill products, as well as kitted security fencing solutions.
Other products include garden, landscaping and miscellaneous products for the home. JCC uses contract manufacturers to make all products.
Some of the products that JCC distributes flow through the Company’s distribution center located in North Plains, Oregon, and some
are shipped direct to the customer from the manufacturer. Primary customers are home centers, eCommerce providers, other retailers, and
direct sales to consumers.
The seed processing and sales segment reflects the
business of Jewett-Cameron Seed Company (“JCSC”). JCSC processed and distributed agricultural seed. Most of this segment’s
sales were derived from selling seed to distributors with a lesser amount of sales derived from cleaning seed. During the fiscal year
ended August 31, 2023, the Company decided to close its JCSC seed subsidiary effective August 31, 2023. JCSC has sold all of its seed
inventory and is presently working to sell the segment’s remaining equipment in preparation for being wound-up. JCSC is continuing
to store some seed for its customers while they arrange alternate storage, but the facility is expected to be fully closed by December
31, 2023.
JC USA provides professional and administrative services,
including accounting and credit services, to each of its wholly-owned subsidiary companies.
Total Company sales were approximately $54.3 million
and $62.9 million during fiscal years ended August 31, 2023 and 2022, respectively.
The Company's principal office is located at 32275
NW Hillcrest Street, North Plains, Oregon; and the Company’s website address is www.jewettcameron.com.
The Company’s primary mailing address is P.O. Box 1010, North Plains, OR 97133. The Company’s phone number is (503) 647-0110,
and the fax number is (503) 647-2272.
The Company files reports and other information with
the Securities and Exchange Commission located at 100 F Street NE, Washington, D.C. 20549. Copies of these filings may be accessed through
their website at www.sec.gov. Reports are also filed under Canadian regulatory requirements on
SEDAR, and these reports may be accessed at www.sedar.com.
The contact person for the Company is Chad Summers,
President and CEO.
The Company’s authorized capital includes 21,567,564
common shares without par value; and 10,000,000 preferred shares without par value. As of August 31, 2023 and November 27, 2023, there
were 3,498,899 common shares outstanding. The Company's common shares are listed on the NASDAQ Capital Market in the United States with
the symbol “JCTCF”.
The Company's fiscal year ends on August 31st.
General Development
of Business
Incorporation
and Subsidiaries
Jewett-Cameron Trading Company Ltd. was incorporated
under the Company Act of British Columbia on July 8, 1987 as a holding company for Jewett-Cameron Lumber Corporation (“JCLC”),
which was incorporated in September 1953 in Oregon, USA. Jewett-Cameron Trading Company, Ltd. acquired all the shares of JCLC through
a stock-for-stock exchange on July 13, 1987, and at that time JCLC became a wholly owned subsidiary. Effective September 1, 2013, the
Company completed a reorganization of certain of its subsidiaries and JCLC’s name was changed to JC USA Inc. (“JC USA”).
JC USA has the following wholly owned subsidiaries. Jewett-Cameron Seed Company, (“JCSC”), incorporated in October 2000, Greenwood
Products, Inc. (“Greenwood”), incorporated in February 2002, and Jewett-Cameron Company (“JCC”) incorporated in
September 2013. Jewett-Cameron Trading Company, Ltd. and its subsidiaries have no significant assets in Canada.
Corporate
Development
Incorporated in 1953, JC USA operated as a small lumber
wholesaler based in Portland, Oregon. In September 1984, the original stockholders sold their interest in the corporation to a new group
of investors. Two members of that group remained active in the Company. These individuals are Donald Boone, who passed away in May, 2019,
and who was the previous Chairman and Director and the former President, Chief Executive Officer, Treasurer, and Principal Financial Officer,
transitioning to strictly the Board Chair in 2017; and Michael Nasser, who retired from day-to-day involvement in the business as of December
2022 but remained engaged as a Director. In October 2023, Mr. Nasser voluntarily resigned from the Board of Directors but is available
as an advisor to the Board.
In July 1987, the Company acquired JC USA in what
was not an arms-length transaction.
In February 2002, Greenwood was incorporated in anticipation
of JC USA acquiring the business and certain assets of Greenwood Forest Products Inc. Greenwood is involved in the processing and distribution
of specialty wood products.
In June 2012, the Company acquired land and fixed
assets located in Manning, Oregon for $250,000 cash. The property was sold in an arms-length transaction in the second quarter of fiscal
2019 for $325,000 cash.
In May 2019 Chairman and Co-Founder of the Company
Donald M. Boone passed away. Mr. Boone served as President and CEO from 1984 until 2017 when he
voluntarily retired from his officer positions and oversaw the addition and successful integration of new management and directors.
In April 2023, the Board of Directors decided to close
the Company’s JCSC seed division. JCSC operates as a seed storage, processing and sales business and was incorporated by the Company
in October 2000 in anticipation of JC USA acquiring the business and certain assets of a firm called Agrobiotech Inc. JCSC has been receiving
lower quantities of seed for processing, and the demand for its marketing and sales services have declined as costs have been rising.
JCSC’s facilities and equipment are near the end of the expected useful life and would require significant capital investment to
remain operating. Regular operations at JCSC ended effective August 31, 2023, but seed storage operations are expected to continue through
approximately December 31, 2023 in order to provide customers time to obtain alterative storage. The entire seed inventory was sold in
early October, and the remaining equipment is in the process of being sold. The Company has prioritized career development and retention,
and some of the JCSC personnel are being moved to different positions within the Company.
Narrative
Description of Business
The Company’s operations are classified into
four segments: Industrial wood products; Pet, Fencing and Other; Seed processing and sales; and corporate and administration. Sales, income
before taxes, assets, depreciation and amortization, capital expenditures, and interest expense by segment are shown in the financial
statements under Note 12 “Segment Information”.
Pet, Fencing and Other – JCC
The pet, fencing and other segments reflect the business
of Jewett-Cameron Company (JCC), which is a manufacturer and distributor of specialty products and a wholesaler of products formerly conducted
by JCLC.
JCC operates out of a 5.6 acre owned facility located
in North Plains, Oregon that includes offices, a warehouse, and a paved yard. This business is a wholesaler, and a manufacturer and distributor
of products that include an array of pet enclosures, kennels, and pet welfare and comfort products, proprietary gate support systems,
perimeter fencing, greenhouses, and fencing in-fill products made of wood, metal and composites. Examples of the Company’s brands
include Lucky Dog®, for pet products; Adjust-A-Gate®, Fit-Right®, Perimeter Patrol®, and Lifetime PostTM for gates
and fencing; Early Start, Spring GardnerTM, Greenline®, and Weatherguard for greenhouses. JCC has also recently become the exclusive
distributor of MyEcoWorld® sustainable bag products in the US and Canada. JCC uses contract manufacturers to manufacture its products.
Some of the products that JCC distributes flow through the Company’s facility in North Plains, Oregon, and some are shipped direct
to the customer from the manufacturer. Primary customers are home centers, eCommerce partners, on-line direct consumers as well as other
retailers.
The home improvement business is seasonal, with higher
levels of sales occurring between February and August. Inventory buildup occurs until the start of the season in February and then gradually
declines to seasonal low levels at the end of the summer.
JCC has concentrated on building a customer base for
lawn, garden, and pet related products. Management believes this market is less sensitive to downturns in the U.S. economy than is the
market for new home construction as its products serve both new and existing home and pet owners.
The wood products that JCC distributes are not unique
and are available from multiple suppliers. However, the metal products that JCC manufactures and distributes may be somewhat differentiated
from similar products available from other suppliers. The company has been successful garnering key patents and trademarks on multiple
products that assist their ability to continue to differentiate based on design and functionality.
JCC owns the patents and manufacturing rights connected
with the Adjust-A-Gate® and Fit-RightTM products, which are the gate support systems for wood, vinyl, chain link, and composite
fences. The Company completed its purchase of the full trademark rights for Adjust-A-Gate® and filed its registration with the US
Patent and Trademark Office in February 2023. Management believes the ownership of these patents and trademarks is an important competitive
advantage for these and certain other products. During fiscal 2023, in addition to the additional trademark rights for Adjust-A-Gate®,
the Company applied for 2 patents (fiscal 2022 – one) and received 0 patents (2022 – Nil).
Backlog orders are a factor in this business as customers
may place firm priced orders for products for shipments to take place three to four months in the future.
Industrial Wood Products - Greenwood
Greenwood is a wholesale distributor of a variety
of specialty wood products. Operations are co-located in the building utilized by JCC.
Historically, a major product category was treated
plywood that was sold into the marine industry. It migrated from that segment and focused more into the transportation industry. Greenwood’s
total sales for fiscal 2023 and 2022 were 5% and 4% respectively of total Company sales.
The primary market in which Greenwood competes has
decreased in economic sensitivity as users are incorporating products into the municipal and mass transit transportations sectors. However,
these markets sustained some contractions due to COVID-19 as work shifted from offices to homes, and many individuals utilized transit
less due to concerns over exposure. In addition, this segment is prone to disruption of supply chain support which can impact other commodities
outside of those specific to the disruption.
Inventory is maintained at non-owned warehouse and
wood treating facilities throughout the United States and is primarily shipped to customers on a just-in-time basis. Inventory is generally
not purchased on a speculative basis in anticipation of price changes.
Greenwood has no significant backlog of orders.
Seed Processing and Sales - JCSC
JCSC operates out of an approximately 12 acre owned
facility located adjacent to North Plains, Oregon. JCSC processes and distributes agricultural seed. Most of this segment’s sales
come from selling seed to distributors with a lesser amount of sales derived from cleaning seed. Sales of seed has seasonality, but it
is most affected by weather patterns in multiple parts of the United States that utilize cyclical planting. The annual weather plays an
important part in year-to-year sales volatility and specific crop demand. However, profitability around and after the month of August
may be higher based on a seasonal surge in cleaning sales, which are more profitable than product sales.
The Company ended regular operations at JCSC effective
August 31, 2023. The Company has now sold all of its remaining seed inventory and is working to sell the remaining JCSC equipment. Seed
storage operations are expected to continue through approximately December 31, 2023 in order to provide customers time to obtain alternative
storage.
Administrative Services – JC USA
JC USA is the parent company for the Company’s
wholly-owned subsidiaries as described above. JC USA operates out of the Company’s offices in North Plains, Oregon. It provides
professional and administrative services, including warehousing, accounting and credit services, to its subsidiary companies.
Tariffs
The Company’s metal and other products are largely
manufactured in China and are imported into the United States. The Office of the United States Trade Representative (“USTR”)
instituted new tariffs on the importation of a number of products into the United States from China effective September 24, 2018. These
new tariffs are a response to what the USTR considers to be certain unfair trade practices by China. The tariffs began at 10%, and subsequently
were increased to 25% as of May 10, 2019. A number of the Company’s products manufactured in China remain subject to duties of 25%
when imported into the United States.
Customer Concentration
The top ten customers were responsible for 88% and
84% of total Company sales for the years ended August 31, 2023 and August 31, 2022, respectively. Also, the Company’s single largest
customer was responsible for 35% and 28% of total Company sales for the years ended August 31, 2023 and August 31, 2022 respectively.
Employees
As of August 31, 2023 the Company had 68 full-time
employees (August 31, 2022 – 75 full-time employees). By segment these employees were located as follows: Greenwood 1, JCC 40, JCSC
8, and JC USA 19. Subsequent to the end of the fiscal year, the Company ceased regular operations at JCSC. 4 of the JCSC employees are
being transferred to JCC, and the remainder were terminated and offered transition assistance. None of these employees are represented
by unions at the Company. Jewett-Cameron Trading Company Ltd. has no direct employees, and the CEO of the Company is employed by JC USA.
ITEM
1A. RISK FACTORS
Investors should carefully consider the following
risk factors and all other information contained in this Annual Report. There is a great deal of risk involved in the business of the
company, and any of the following risks could affect our business, its financial condition, its potential profits or, and could result
in you losing your entire investment if our business became insolvent. The risks and uncertainties described below are not the only ones
we face. Additional risks and uncertainties, including those not presently known to us or that we currently deem immaterial, also may
result in decreased revenues, increased expenses or other events which could result in a decline in the price of our common stock.
Risks Related to Our Common Stock
We may decide to acquire assets or enter into
business combinations, which could be paid for, either wholly or partially with our common stock and if we decide to do this our current
shareholders would experience dilution in their percentage of ownership.
Our Articles of Incorporation give our Board of Directors
the right to enter into any contract without the approval of our shareholders. Therefore, our management could decide to make an investment
(buy shares, loan money, etc.) without shareholder approval. If we acquire an asset or enter into a business combination, this could include
exchanging a large amount of our common stock, which could dilute the ownership interest of present stockholders.
Future stock distributions could be structured
in such a way as to be 1) diluting to our current shareholders or 2) could cause a change in control to new investors.
If we raise additional funds by selling more of our
stock, the new stock may have rights, preferences or privileges senior to those of the rights of our existing stock. If common stock is
issued in return for additional funds, the price per share could be lower than that paid by our current stockholders. The result of this
would be a lessening of each present stockholder’s relative percentage interest in our company.
The Company’s common shares currently trade
within the NASDAQ Capital Market in the United States. The average daily trading volume of our common stock was approximately 5,000 shares
on NASDAQ for the fiscal year ended August 31, 2023. With this limited trading volume, investors could find it difficult to purchase or
sell our common stock.
Risks Related to Our Business
A contagious disease outbreak,
such as the recent COVID-19 pandemic emergency, could have an adverse effect on our operations and financial condition
Our business could be negatively affected by an outbreak
of an infectious disease due to the consequences of the actions taken by companies and governments to contain and control the virus. These
consequences include:
The financial impact of such an outbreak are
outside our control and are not reasonable to estimate but may be significant. The costs associated with any outbreak may have an adverse
impact on our operations and financial condition and not be fully recoverable or adequately covered by insurance.
We could experience a decrease in the demand
for our products resulting in lower sales volumes.
In the past we have at times experienced decreasing
products sales with certain customers. The reasons for this can be generally attributed to: increased competition; general economic conditions;
demand for products; and consumer interest rates. If economic conditions deteriorate or if consumer preferences change, we could experience
a significant decrease in profitability.
If our top customers were lost, we could experience
lower sales volumes.
For the fiscal year ended August 31, 2023 our top
ten customers represented 88% of our total sales, and our single largest customer was responsible for 35% of our total sales. We would
experience a significant decrease in sales and profitability and would have to cut back our operations, if these customers were lost and
could not be replaced. Our top ten customers are located in North America and are primarily in the retail home improvement and pet industries.
We could experience delays in the delivery of
our products to our customers causing us to lose business.
We purchase our products from other vendors and a
delay in shipment from these vendors to us could cause significant delays in our delivery to our customers. This could result in a decrease
in sales orders to us and we would experience a loss in profitability.
Governmental actions, such as tariffs, and/or
foreign policy actions could adversely and unexpectedly impact our business.
Since the bulk of our products are supplied from other
countries, political actions by either our trading country or our own domestic policy could impact both availability and cost of our products.
Currently, we see this in regard to tariffs being levied on foreign sourced products entering into the United States, including from China.
The continuing tariffs by the United States on certain Chinese goods include some of our products that we purchase from suppliers in China.
The company has multiple options to assist in mitigating the cost impacts of these government actions. However, we cannot control the
duration or depth of such actions which may increase our product costs which would in turn reduce our margins and potentially decrease
the competitiveness of our products. These actions could have a negative effect on our business, results of operations, or financial condition.
We could lose our credit agreement and could
result in our not being able to pay our creditors.
We have a line of credit with U.S. Bank in the amount
of $10 million, of which the entire amount is available. We are currently in compliance with the requirements of our existing line of
credit. If we lost access to this line of credit it could negatively affect our ability to pay some of our creditors on a timely basis.
Our information technology systems are susceptible
to certain risks, including cyber security breaches, which could adversely impact our operations and financial condition.
Our operations involve information technology systems
that process, transmit and store information about our suppliers, customers, employees, and financial information. These systems face
threats including telecommunication failures, natural disasters, and cyber security threats, including computer viruses, unauthorized
access to our systems, and other security issues. While we have taken aggressive steps to implement security measures to protect our systems
and initiated an ongoing training program to address many of the primary causes of cyber threat with all our employees, such threats change
and morph almost daily. There is no guarantee our actions will secure our information systems against all threats and vulnerabilities.
The compromise or failure of our information systems could have a negative effect on our business, results of operations, or financial
condition.
If we fail to maintain an effective system of
internal controls, we may not be able to detect fraud or report our financial results accurately, which could harm our business and we
could be subject to regulatory scrutiny.
We have completed a management assessment of internal
controls as prescribed by Section 404 of the Sarbanes-Oxley Act, which we were required to do in connection with our year ended August
31, 2023. Based on this process we did not identify any material weaknesses. Although we believe our internal controls are operating effectively,
we cannot guarantee that in the future we will not identify any material weaknesses in connection with this ongoing process.
ITEM
1B. UNRESOLVED STAFF COMMENTS
--- No Disclosure Necessary ---
ITEM 2. PROPERTIES
The Company’s executive offices are located
at 32275 NW Hillcrest Street, North Plains, OR 97133. The 5.6 acre facility, which is owned, consists of 55,250 square feet of covered
space (10,000 office and 47,250 warehouse), a little over three acres of paved yard space, and was originally completed in October 1995.
A 12,000 square foot warehouse expansion was completed in fiscal 2017 which the Company is using for several new product lines. In fiscal
2021, the Company completed the conversion of 2,000 square feet of older warehouse space into 4,000 square feet of office and meeting
space on two levels. The facility provides office space for JC USA, including all of the Company’s executive offices, and is used
as a distribution center to service the Company’s customer base for JCC and Greenwood. During fiscal 2022, the Company leased an
additional 4,700 square feet of warehouse space located in North Plains.
The property associated with JCSC, which is owned,
consists of 11.7 acres of land, 105,000 square feet of buildings, rolling stock, and equipment. It is currently used for seed processing
and storage. It is located at 31345 NW Beach Road, Hillsboro, OR 97124, which is adjacent to North Plains, OR. With the closure of the
seed business, the ultimate disposition of JCSC’s property has not been determined and will be evaluated by the Board.
During fiscal 2010, the Company purchased a 2,000
square foot building adjacent to the Company’s main facilities that previously housed a seed testing lab located at 31895 NW Hillcrest
Street, North Plains, OR 97133. The Company formerly leased the property for $729 per month until the expiration of the lease on January
4, 2010. At that time, the Company exercised its option to buy the land and building for a total cost of $150,946. In fiscal 2020, the
Company began a renovation of this building into its new innovation center which will focus on new product development for the Company’s
subsidiaries. The renovation was completed during fiscal 2021.
ITEM
3. LEGAL PROCEEDINGS
A consortium of California District Attorneys contacted
the Company in regard to possible liabilities related to environmental labeling of its plant-based Lucky Dog Poop Bags previously sold
in the State of California. The Company has since modified its product marketing statements in response to their concerns, and during
the period ended May 31, 2022, accrued $300,000 in anticipation of a settlement. In June 2022, a settlement was finalized which required
the Company to pay the previously accrued $300,000 as a cash fine over a four-month period with no admission of guilt by the Company.
The Company was one of three named defendants in a
Civil Action in Pennsylvania. The matter arises out of a dog allegedly escaping from a Jewett-Cameron kennel product and causing personal
injuries to three individuals. The Company’s applicable liability insurer provided the defense covering the Company’s legal
fees and costs. During the fiscal year ended August 31, 2022, the case was settled within the Company’s insurance policy limits
with no admission of guilt by the Company, and there were no additional costs incurred.
In fiscal 2021,
the Company initiated arbitration against a former distributor asserting a breach of the distribution agreement and seeking damages. The liability arbitration
hearing was held in December 2022. In February 2023, the arbitrator issued its decision and ruled in favor of the Company on the
majority of all of its claims. A damages hearing was held in August 2023. In September 2023, the Company settled
its arbitration for a cash payment of $2,450,000 which was received in October 2023.
ITEM
4. MINE SAFETY DISCLOSURES
--- No Disclosure Necessary ---
PART II
Market
Information
Our common shares trade on the NASDAQ Capital Market
(formerly the NASDAQ Small Cap Market) in the United States. The trading symbol for the common stock is “JCTCF” and the CUSIP
number for the stock is 47733C-20-7. The common stock began trading on the NASDAQ Small Cap Market in April 1996.
Table No. 1 lists the volume of trading along with
the high, low, and closing sales prices on the NASDAQ Capital Market for the Company's common shares.
Table No. 1
NASDAQ Capital Market
Common Shares Trading Activity
(US Dollars)
Period Ended Volume High Low Closing
Monthly
Quarterly
Annually
Holders
Computershare Investor Services Inc. which is located
in Vancouver, British Columbia, Canada is the registrar and transfer agent for the common shares.
On October 13, 2023 there
were 26 registered shareholders and 3,498,899 shares of the Company’s common shares outstanding.
Dividends
The Company has not declared any dividends since incorporation
and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain earnings for use
in its operations, expansion of its business, and the possible repurchase of Company shares. There are no restrictions that limit the
ability of the Company to pay dividends on common equity or that are likely to do so in the future. Any dividends paid by the Company
to U.S. shareholders would be subject to Canadian withholding tax.
Recent Sales of Securities:
Use of Proceeds from Securities
The Company has sold no securities in the last 3 fiscal
years.
Purchases of equity
securities by the issuer and affiliated purchasers
The Company has not repurchased any common shares
during the years ended August 31, 2023 or August 31, 2022.
ITEM 6. [RESERVED]
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The Company’s operations are classified into
three reportable operating segments and the parent corporate and administrative segment, which were determined based on the nature of
the products offered along with the markets being served. The segments are as follows:
· Industrial wood products
· Pet, Fencing and Other
· Seed processing and sales
· Corporate and administration
Quarterly Results
The following table summarizes quarterly financial
results in fiscal 2023 and fiscal 2022. (Figures are thousands of dollars except per share amounts).
For the Year Ended August 31, 2023
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
For the Year Ended August 31, 2022
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year*
RESULTS
OF OPERATIONS
Fiscal 2023 was a difficult year in our markets. Our
operations confronted a number of challenges, including poor weather, negative economic trends and inflationary pressures, and changing
consumer spending habits.
The primary selling season for our outdoor products
in the spring and summer months was greatly shortened by the historically wet and unseasonably cold winter weather which extended across
much of the United States well into April. This delayed, and ultimately significantly reduced, our orders from many of our customers,
particularly retail hardware and Big Box stores. They maintained their winter inventory longer than usual which reduced their selling
period for warm weather products. As a result, they ordered less product from our outdoor lines this year than in ordinary weather years.
The post-COVID shift of consumer spending habits,
which has been compounded by persistently high levels of inflation, had a negative effect on our sales for the year. These forces were
particularly prominent within our home improvement and pet product lines, as consumers reduced their spending on these types of discretionary
products from the elevated levels experienced during the pandemic. Our fiscal 2023 sales of $54.2 million is 21% higher than our sales
of $44.9 in the last pre-pandemic year of 2020. Although inflation has raised our selling price of our products since 2020, this 21% increase
in the dollar amount of sales is still greater than the cumulative inflation rate in the US during the same period.
Fencing sales were largely steady year-over-year,
with several product lines exceeding expectations. This performance was especially encouraging considering the poor Spring weather across
the country which reduced consumer demand for fence lumber and hardware. Our efforts to increase the visibility of our hardware products
and maintain their in-stock availability with several retailers has also contributed to this year’s sales. We remain at the desired
warehouse inventory levels for our key fence products and are experiencing no shipping delays to our customers.
During fiscal
2023, we signed a new sales agreement with one of major lumber customers which changed how we inventory, sell and record our sales for
this customer. Our expectation that this new arrangement would provide us with more consistent and predictable fencing sales, while improving
the availability of the product in their stores, has been confirmed. Although this agreement requires us to maintain higher levels of
fencing inventory than we had in the past, we are pleased with how the arrangement has progressed. In the future, it may be possible to
extend this agreement to more of this customer’s distribution centers that we continue to serve under our prior sales agreements.
The pet industry
overall has recently experienced a spending downturn from the surge of sales recorded in the prior two years. During the pandemic many
Americans worked from home. They acquired new pets and purchased additional supplies for all their pets. This increased spending subsided
as many people returned to work outside the home. The higher levels of inflation prevailing over the last 18 months has also dampened
consumer spending in the sector. Demand for our pet products have similarly been affected. We relaunched one of our kennel products
during 2023, and we also resolved a sales interruption with a significant on-line retailer, both of which have had positive results on
sales. Our pet product inventory levels remain higher than usual. Many retailers have a higher than normal level of pet supply inventory
on hand due to increasing their purchases during the pandemic prior to the sudden downturn in consumer demand. As a result, we expect
overall demand from retailers to remain depressed into 2024 until they are able to work through their own high inventory levels. We
remain committed to maintaining our list prices on our primary pet products. There is no urgency to move this inventory as it will not
degrade or spoil over time. For our slower moving pet products, we continue to explore opportunities to accelerate sales in those items.
We launched our new MyEcoWorld® sustainable bag
products during the 4th quarter of fiscal 2023. Under our distribution agreement with SECOS Group of Australia, Jewett-Cameron
is the exclusive distributor of their MyEcoWorld® sustainable bag products in the US and Canada. We expect it will take time for sales
of these new and innovative premium products to gain traction with retailers and consumers. Since these products are consumables, once
they are established, recurring sales will build over time. We are optimistic of the potential of this new product line to grow into a
meaningful segment of our business. Consumers are increasingly seeking more environmentally friendly alternatives to conventional hydrocarbon
derived plastic products. Our success with our compostable poop bag since its launch several years ago indicates these products are less
seasonal and can provide positive contributions to our historically lower revenue quarters.
Greenwood’s primary customers are in the transit
sector, which is an industry among the most affected by the COVID-19 pandemic. Transit is beginning to recover from the severe decline
in ridership and other serious issues, including shortages of vehicle components and trained drivers and mechanics, that reduced the number
of vehicles on the road and the need for Greenwood’s engineered wood products. With transit’s recovery, Greenwood’s
sales have increased from the pandemic periods but were flat in 2023 compared to 2022. We continue to see a number of marketing opportunities
for Greenwood’s products in both its current markets and in new sectors, such as construction. We have been actively searching to
hire new traders to pursue these new business opportunities, and a new trader was successfully hired in September 2023.
During fiscal 2023, management concluded a comprehensive
strategic review of the seed segment. As a result of this review, the Board of Directors made the difficult decision to close JCSC effective
August 31, 2023. The review of JCSC, which last reported a full-year profit in fiscal 2020, was initiated due to the segment’s declining
revenue, higher costs, and the lack of success in generating new customers over the last several years. When the seed operation was first
opened in 1965, and then acquired by the Company in 2000, the local area around the JCSC operations was rural and dominated by large farming
operations, including grass seed farms which made up JCSC’s customers. Over the last decade, many agricultural customers in the
area around JCSC are converting their acreage from growing cyclical and commoditized grass seed to more specialized higher value crops,
such as berries and filberts. Consequently, JCSC has been receiving lower quantities and quality of seed for processing and experiencing
less demand for its marketing and sales in recent years. In addition, JCSC’s building and equipment are nearing the end of their
expected operating life. Over the last several years, the higher costs of maintenance required to maintain operations have had a substantial
negative effect on JCSC’s margins and has been an important factor in JCSC’s operating losses. Taking into consideration the
current economic and market trends, and the high cost of new equipment, the Board determined an orderly wind-down of operations and closure
of JCSC was the most prudent action.
The wind-down of regular operations including seed
cleaning was effective August 31, 2023. The process was greatly aided by the retention of the entire JCSC operating staff. As of August
31st, nearly all of the seed inventory had been sold, with the entire remaining inventory sold in September. Some of the equipment
and other assets have also been sold, with the remainder being marketed for disposal by the end of calendar 2023. We are providing seed
storage for our prior customers through December 2023 to allow them to arrange for new storage and seed cleaning services. We expect full
closure of the facility to occur on or about January 1, 2024. Some of the JCSC staff are being moved to other roles within the Company,
and transition services were offered for the remainder who were terminated effective August 31, 2023.
JCSC owns 11.7 acres of land and 105,000 square feet
of buildings in Hillsboro, Oregon. The land is very well located at a major interchange immediately adjacent to busy US Highway 26, which
is a primary route linking Metro Portland to its Northwest suburbs and then to the Coast beaches. Its close proximity to Portland has
meant that since 1990, Hillsboro has been one of the fastest growing cities in Oregon. Much of its original farmland has already been
converted into residential areas and new business and industrial developments, including high-technology campuses. Currently, JCSCs land,
which lies west of downtown Hillsboro, is zoned for agricultural use. However, there have been ongoing governmental discussions about
extending the Urban Growth Boundaries further to the west. These proposed boundary changes could encompass JCSC’s land and allow
for a rezoning to residential, commercial or industrial use. Therefore, management and the Board have already begun to receive unsolicited
inquiries from third-parties about any future sale of JCSC’s building and land which would potentially take advantage of the valuable
rezoning opportunity. At this time the property has not been listed for sale. The ultimate disposition of these assets has not been determined
but will be studied by the Board before any final decision is reached.
Our inventory as of August 31, 2023 was
$18.3 million, which was a decline of over $2.3 million from the end of the prior fiscal year-end, but are higher than we have carried
in years prior to fiscal 2022. Some of the change is due to the new fencing distribution agreement with a customer. We are required to
maintain a higher level of lumber inventory than we have previously to ensure the availability of these products for this customer, which
also serves to optimize our sales. We will continue to maintain higher lumber inventories in future period. Some of our higher inventory
level is attributable to changes in our customers’ purchasing practices in some of our key categories, as many have slowed their
purchasing rates post-pandemic in response to widespread changes in the purchasing behaviors of American consumers. A portion of our higher
inventory is a result of the supply chain disruptions and other macro-economic issues experienced over the last several years. Some of
our products, including our larger and bulkier items, were late in arriving from the manufacturer in China which contributed to our missing
much of the busy selling season last year. Since our purchases of these manufactured goods have a protracted lead time, additional orders
which in a normal year would have been needed to replace the goods we expected to sell and ship last summer instead stacked up behind
the late arriving inventory in our warehouse. Fortunately, this excess inventory does not spoil or turn obsolete. The Company remains
committed to selling this inventory as we rework these specific distribution channels, but we expect this to take some time.
Our management continues to proactively face these
challenges and find innovative ways to improve our operations. In response to the supply chain logistic issues and delays we have successfully
negotiated new purchase terms with several of our major suppliers which include reducing prepayments and in some cases extended balance
due deadlines. Additionally we have arranged for stock of our key products to be produced and stored at the factory with blanket purchase
orders and minimal down payment to be available for shipment quicker to meet market demand. When we do make an order for these items the
supplier will now be able to pull finished product from this pre-produced supply instead of waiting to begin the production process only
after our order has been received. This will quicken the time to fulfil customer direct shipment orders as well as the time for us to
receive shipments at our warehouse in Oregon. In addition to shortening our order cycle, these agreements also improve our inventory management
and enhances our cash flow.
We utilized our bank line of credit for working capital
to primarily fund inventory purchases during the pandemic and during the post-pandemic supply chain disruptions in order to ensure we
had sufficient inventory on-hand to fulfill as many customer orders as possible. As those supply issues have subsided, we have been able
to reduce our need to borrow against the line of credit. Because the Company’s current inventory
position is strong and we are not purchasing large amounts of new inventory, we have been able to direct much of our positive cash flow
generated during our traditionally busy 3rd and 4th fiscal quarters to pay down the bank line of credit. The amounts
borrowed under the line of credit have decreased to $1.26 million as of the end of the 4th quarter. As of early October 2023,
the remaining $1.26 million borrowed against the line of credit has been repaid and all $10 million of the line is available. The Company’s
revenues and cash flow continue to be seasonal and highly variable, with the 3rd and 4th quarters of the fiscal
year being much busier than the 1st and 2nd quarters due to the Company’s current product offerings. Therefore,
the availability of a line of credit is important to provide financial flexibility, and management expects to continue to maintain a credit
line and draw against it as needed. We are studying the possibility of restructuring or replacing the existing line, as different
credit arrangements may potentially provide the Company with greater financial flexibility.
Gross margin for the fiscal year was 22.6%, which
is an improvement over the 21.9% gross margin from the prior year. Although our shipping and some raw-material costs have declined from
their highs experienced in the last several years, we continue to work off our higher priced inventory acquired when these costs were
at their highest. As we sell this high-cost inventory, our costs of goods sold declines. The high inflation rate which has prevailed over
the last 24 months has also depressed our margins. Inflation affects our costs of goods more quickly than our ability to raise our selling
prices. Any price hikes we introduce takes time to be accepted by our customers and consumers, and also have to be made more gradually
in stages. The recent moderation of the inflation rate is allowing our increased selling prices to catch up to our higher costs of goods
sold, which is improving our margins.
In fiscal 2021,
we filed for arbitration against one of our former distributors asserting a breach of the distribution agreement. The liability arbitration
hearing was held in December 2022. In February 2023, the arbitrator issued its decision in favor of the Company on the majority of all of
our claims. A damages hearing was held in August 2023. Subsequent to the end of the fiscal year, we reached a favorable agreement
with the defendant to settle the case. The settlement, which was received in early October, covers our substantial legal