UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
———————
FORM 10-K
For the fiscal year ended: August 31, 2022
OR
For the transition period from ____ to ____
Commission file number: 000-19954
JEWETT-CAMERON TRADING CO LTD
(Exact name of Registrant as Specified in Its
Charter)
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 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 in 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 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☒ 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). Yesþ No ☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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. ☐
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. ☐
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, 2022 = $24,954,072
Indicate the number of shares
outstanding of each of the registrant’s classes of common stock, as of November 21, 2022: 3,495,342
Jewett-Cameron Trading Company Ltd.
Form 10-K Annual Report
Fiscal Year Ended August 31, 2022
TABLE OF CONTENTS
PAGE
PART I
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 16
Item 8. Financial Statements and Supplemental Data 17
Item 9A. Controls and Procedures 38
Item 9B. Other Information 38
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 38
PART III
Item 10. Directors, Executive Officers and Corporate Governance 39
Item 11. Executive Compensation 43
Item 14. Principal Accountant Fees and Services 46
PART IV
Item 15. Exhibits, Financial Statement Schedules 48
i
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, one discontinued segment (Industrial Tools) 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 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.
The Company also formerly
operated in the industrial tools and clamps segment through MSI-PRO (“MSI”). MSI imported and distributed products including
pneumatic air tools, industrial clamps, and saw blades. These products were primarily sold to wholesalers that in turn sold to contractors
and end users. During fiscal 2020, the Company decided to exit this segment. The remaining inventory was liquidated, and MSI was wound-up
and closed.
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 $62.9 million
and $57.5 million during fiscal years ended August 31, 2022 and 2021, 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, 2022 and November 21, 2022, there
were 3,495,342 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. MSI-PRO Co. (“MSI”), incorporated in April 1996 and dissolved in September
2019, 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 remains active in the business and is both a Director and the
Corporate Secretary.
In July 1987, the Company acquired JC USA in what
was not an arms-length transaction.
In early 1986, prior to JC
USA being acquired by the Company, JC USA acquired Material Supply International (“Material Supply”). Material Supply was
engaged in the importation and distribution of pneumatic air tools and industrial clamps. The product line was re-branded as “MSI-PRO”
and MSI was incorporated in 1996 to carry-on the business of Material Supply.
In October 2000, JCSC was incorporated in anticipation
of JC USA acquiring the business and certain assets of a firm called Agrobiotech Inc. JCSC operates as a seed storage, processing and
sales business.
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 September 2019 the Board of Directors decided to
permanently close the Company’s MSI-Pro division. Efforts to drive further sales and margin growth were unsuccessful due to a lack
of market differentiation and changing customer patterns. The remaining inventory was liquidated and the personnel were moved into different
positions with the Company. As of August 31, 2020, MSI was wound-up and the division closed.
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-GateTM, Fit-Right®, Perimeter Patrol®, and Lifetime PostTM for gates
and fencing; Early Start, Spring GardnerTM, Greenline®, and Weatherguard for greenhouses. JCC uses contract manufacturers to
manufacture these 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-GateTM and Fit-RightTM products, which are the gate support systems for wood, vinyl, chain
link, and composite fences. Management believes the ownership of these patents results in an important competitive advantage for these
and certain other products. During fiscal 2022, the Company applied for one patent (fiscal 2021 – Nil) and received no patents (2021
– Nil). A patent granted in 2018 was an update of the Adjust-a-GateTM, which will extend the protection on the Adjust-a-GateTM
products for an additional 15 years.
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 has been treated
plywood that was sold into the marine industry. It migrated from that segment and focused more into the transportation industry. In February
2014, due to the falling marine market, the Company sold its remaining and excess inventory related to the marine industry. Greenwood’s
total sales for fiscal 2022 and 2021 were 4% and 5% 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 may sustain some contractions due to COVID-19 related patterns of individuals utilizing transit and mass 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 after the month of August may
be higher based on a seasonal surge in cleaning sales, which are more profitable than product sales.
JCSC often has a backlog of sales orders based on
placement of future contracts so that buyers can capture key commodity supplies for specific crops due to seasonal patterns.
Administrative Services – JC USA
JC USA Inc. is the parent company for the Company’s
wholly-owned subsidiaries as described above. JC USA 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 have been subject to duties of
25% when imported into the United States.
These new tariffs were temporarily reduced on many
of the Company’s imported products in September 2019 under a deemed one-year exemption. The 25% tariff rate was restored on the
Company’s products in September 2020 when the exemption expired.
Customer Concentration
The top ten customers were responsible for 84% and
81% of total Company sales for the years ended August 31, 2022 and August 31, 2021, respectively. Also, the Company’s single largest
customer was responsible for 28% and 33% of total Company sales for the years ended August 31, 2022 and August 31, 2021 respectively.
Employees
As of August 31, 2022 the Company had 75 full-time
employees (August 31, 2021 – 74 full-time employees). By segment these employees were located as follows: Greenwood 1, JCC 44, JCSC
11, and JC USA 19. 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, any of the following risks could affect our business, its financial condition, its potential profits or losses, 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 common shares also formerly traded on the Toronto Stock
Exchange in Canada until the Company voluntarily delisted from the Toronto Stock Exchange on October 11, 2012. The average daily trading
volume of our common stock was approximately 3,350 shares on NASDAQ for the fiscal year ended August 31, 2022. 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, 2022 our top
ten customers represented 84% of our total sales, and our single largest customer was responsible for 28% 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 $2.4 million is available. We are currently in compliance with the requirements of our existing line of credit.
If we lost this credit it could become impossible 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, 2022. 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.
During fiscal 2010, the Company purchased a 2,000
square foot building 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 requires
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.
The Company has initiated arbitration against a former
distributor asserting a breach of the distribution agreement and seeking damages. Arbitration is tentatively scheduled to occur in December
2022. While the company is robustly pursuing its rights and defending itself against claims, the arbitration and lawsuit are in their
initial stages and therefore it is speculative to predict as to its outcome.
Item
4. Mine Safety Disclosures.
--- No Disclosure Necessary ---
PART II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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.
The Company declared a two for one stock split of
its common stock with a record date of the close of business on May 22, 2018. Shareholders received one additional common share for each
common share held as of the record date. The stock split was effective as of May 29, 2018.
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. Prices are adjusted to reflect the
common stock split effective May 29, 2018.
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 11, 2022 there
were 23 registered shareholders and 3,495,342 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, 2022 or August 31, 2021.
Item
6. [Reserved].
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 2022 and fiscal 2021. (Figures are thousands of dollars except per share amounts).
For the Year Ended August 31, 2022
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year*
For the Year Ended August 31, 2021
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
RESULTS OF OPERATIONS
Fiscal 2022 was a difficult and unpredictable year.
Although the challenges associated with the worldwide COVID pandemic began to fade, the recovery brought its own unique difficulties,
both for the Company and our customers.
Sales for the year were $62,901,831, which was an
increase of $5,400,288, or 9%, from sales of $57,501,543 in fiscal 2021. Our cost of sales, however, increased by $5,753,875, or 13%,
which compressed our gross margins to 21.9% for the current year from 24.6% in fiscal 2021. These higher costs were due to large increases
in raw material, energy, transportation, and freight costs during the year. We were especially affected by the soaring ocean freight costs
caused by near-record high energy prices, port delays and shortages of vessels and shipping containers in the Pacific region. For example,
our container shipping costs from China in the 4th quarter of fiscal 2022 were over 60% higher than we paid in the 4th
quarter of fiscal 2021, and over 900% higher than we paid in fiscal 2020 and 2019. We also saw unprecedented increases in our shipping
and delivery costs within the United States, and the time to both receive and deliver our goods also increased substantially.
Because of the increasing costs of shipping and uncertainty
of the timing of receipt of orders from China, coupled with rising inflation, we decided at the end of the 2nd quarter to build
our on-site inventory, particularly in our highest volume items. This build began prior to the start of our traditionally busiest Spring
and Summer sales season in our 3rd and 4th quarters of our fiscal year. It allowed us to mitigate the risks of shipping
and supply chain disruptions and ship ahead of several announced price increases from both suppliers and shippers.
This higher level of inventory lowered some of our
product costs while ensuring high product availability of our most popular products and on-time fulfillment during the 3rd
quarter. However, the supply issues on certain products which we experienced throughout the year worsened in the 4th quarter
and reduced our anticipated level of sales. We sold out of some products entirely and lost sales while waiting for additional units to
arrive from China. Due to both supplier and shipping delays, some of our seasonal products arrived late and we missed the primary sales
window. Those sales could not be recouped. Several new products, which we originally planned for release in fiscal 2021 but were pushed
back into 2022 due to the effects of the pandemic in China, had a slower than expected roll-out as many of our customers were also experiencing
inventory issues and curtailed their orders. Our customers’ inventory issues also unexpectedly affected sales of some of our existing
products, as certain retailers did not order at their usual volumes. We have now met with these customers to discuss and correct the issues
to help ensure improved order volumes going forward.
During the fourth quarter we evaluated the costs of
our international sales and decided that we will pause our effort to expand our sales in Europe. Our strategy of selling our products
through distributors was ultimately not profitable, and we are evaluating new European sales strategies for the future. However, in the
near term, we determined that the deteriorating European financial environment, which has been negatively affected by the strong US dollar,
the war in Ukraine, and likely upcoming energy shortages, is not an opportune time to resume our sales efforts. Therefore, we will be
liquidating the inventory we currently have located in Europe during fiscal 2023. In the 4th quarter, we recorded a $800,000
inventory allowance against our earnings, with a good portion of this allowance for the carrying value of our European inventory. We feel
that there remains significant long-term potential to expand our sales internationally and remain committed to international expansion.
We intend to formulate a new international growth plan, including in Europe, and will consider new sales initiatives once financial conditions
improve.
Our fiscal 2022 financial results were also negatively
affected by the settlement of a case brought by an association of California District Attorneys. This case related to their ongoing investigation
into the environmental labeling and marketing of dog waste bags. The District Attorneys claim that labeling certain dog waste bags, including
the Company’s, as biodegradable or compostable were misleading due to the lack of industrial composting facilities that accept dog
waste. A number of major retailers also settled their portion of the case. In June 2022, we agreed to settle for a $300,000 payment with
no admission of guilt by the Company. In response to the case, we have redesigned our packaging and marketing materials for the poop bags
which included feedback from the District Attorneys to help ensure legal compliance for our future sales of the products within California.
We have moved forward with the lessons learned from the issue. Sales with the new packaging have resumed throughout the US and are selling
well through both retailers and online which demonstrates the consumer’s desire for these types of new products.
Building our inventory required greater cash outlays
which we primarily funded through our bank line of credit. Our plan is to repay the line of credit as the inventory is sold and accounts
receivable are collected. We reduced our borrowing from a high during the year of $9.5 million to $7.0 million as of August 31st.
Because we are currently well stocked with inventory, we anticipate that we will order and receive smaller amounts of inventory than we
historically order during the first quarter and into the second quarter of fiscal 2023. This is expected to allow us to more effectively
manage our working capital in fiscal 2023.
We have continued to strategically invest in our personnel,
facilities, and equipment. Effective January 1, 2022, Charlie Hopewell moved from the day-to-day
operational role as CEO to his overall strategy positions as a Director and Board Chair. Chad Summers assumed the role of Chief Executive
Officer in addition to his prior position as President, and Mitch Van Domelen, CPA, was promoted to Chief Financial Officer. Chad Summers
was also named a Director in November 2022. We also added new employees and promoted from within to fill important skilled specialty
roles to improve our efficiency and expand customer engagement and service, including a new Chief Revenue Officer and newly created positions
of a Vice-President of Supply and a Vice-President of Fulfillment formerly consolidated under the COO role. In both 2021 and 2022, we
were named a “Top Workplace” by the Oregonian Newspaper, based on employee survey responses which has helped us to retain
and attract talent and build a positive corporate culture.
We expanded
our facilities though the renovation of an existing warehouse building which we will use for both custom order fulfilment and to
support our growing fence business. New investments have been made in technology improvements, including Electronic Data Interchange (EDI)
and customer order automation through a Business to Business portal. Our corporate website was upgraded with enhanced accessibility, functionality
and modernized investor relations and contact sections. We also redesigned our product section with easier navigation and a more unified
brand presentation within a new eCommerce interface.
Although ocean shipping costs have recently fallen
from the record highs seen in fiscal 2022, other logistic issues remain. Because of these supply chain and logistic issues, as well as
the continuing tariffs levied on Chinese made goods, management is exploring new sources for our raw materials and the manufacture of
certain finished products.
The predictions for worsening macroeconomic conditions
in the US due to higher rates of inflation and negative consumer sentiment clouds the outlook for fiscal 2023. Higher energy, food and
housing prices have severely restrained consumers’ available discretionary income. This has negatively affected their willingness
to spend money on non-critical items as reflected in the recent significant decline in the US Index of Consumer Sentiment, which may limit
our ability to grow our sales in the near-term. The rate of inflation experienced in fiscal 2022 has resulted in many of our product selling
prices lagging our product costs as our customers were slow to adopt our price increases. The rate of inflation is anticipated to continue
to increase in the near-term, and we may not be able to increase our prices in response as quickly as our costs could rise. Our current
inventory is also being carried at historically high costs as a result of the multiple supply chain and inflationary issues we have been
experiencing. This will reduce our gross profit in 2023, even if our other costs fall from the elevated levels of fiscal 2022. Therefore,
we expect our margins will continue to be restrained during fiscal 2023.
Our management is cognizant of the current challenges
facing our markets, and those affecting our customers. We have carefully formulated a strategy for fiscal 2023 which will utilize our
traditional strengths. We will focus on growing our core products, such as gates and kennels, and our popular new products, including
Eurofence and Lifetime Post. We also plan to offer more eco-friendly products which build upon our early success selling our popular dog
waste bags. We intend to strengthen our historic sales channels such as with big-box retailers and online within North America, while
increasing our efficiency and reducing our costs. Our revamped operations team is working with our upgraded technology suite and its enhanced
reporting capabilities to reduce our order to cash timeline and improving our shipping by reducing costs and time to receive and deliver
our products. The unexpected economic disruptions caused by the COVID pandemic are now subsiding. We believe we can now more effectively
manage our business by being able to fully apply the significant strategic and operational investments we have made over the last several
years.
Fiscal Years Ended August 31, 2022 and August 31, 2021
Fiscal 2022 sales totaled $62,901,831 compared to
sales of $57,501,543 in fiscal 2021, which was an increase of $5,400,288, or 9%. The increase in sales was primarily due to higher sales
at JCC.
Gross margin declined to 21.9% from 24.6% in fiscal
2021 due to higher raw material and shipping and logistic costs.
Operating expenses increased by $1,416,552 to $11,823,506
from $10,406,954 in fiscal 2021. The increase was due to higher selling, general and administrative expenses of $4,008,166 from $3,204,945,
and an increase in wages and employee benefits, which rose to $7,495,723 from $6,957,730. The Company added additional personnel in specialty
areas and increased wages in response to the broad wage inflation being experienced by most industries throughout the area and the United
States. Depreciation and amortization increased to $319,617 from $244,279. Income from operations decreased to $1,969,553 from $3,739,692
in fiscal 2021 due to the lower gross margins and the higher costs.
Including other items, income before income taxes
was $1,581,000 in fiscal 2022 compared to $4,424,208 in fiscal 2021.
Other items in fiscal 2022 were a loss of ($230,034)
which includes a payment of $300,000 for the settlement of claims brought by the Association of California District Attorneys regarding
the labeling and marketing of the Company’s dog waste bags, and income of $5,000 as a portion of the parking area at JCS that was
formerly rented to an unrelated company for $1,000 per month through January 2022. The Company also recorded a gain of $64,000 in the
current year related to an evaluation of its reserve for deferred tax, which was determined to be greater than its current liability.
Interest expense for the Company’s bank line of credit was $163,045. Other items in fiscal 2021 were gain on extinguishment of debt
of $687,387, which was the forgiveness of the Company’s PPP loans. Interest and other expenses were $2,871. Income tax expense was
$416,877 compared to $969,255 in fiscal 2021. The Company calculates income tax expense based on combined federal and state rates that
are currently in effect.
Net income for fiscal 2022 was $1,164,123, or $0.33
per common share, compared to net income of $3,454,953, or $0.99 per common share, for fiscal 2021. Fiscal 2022 income was negatively
affected by the $300,000 legal settlement and the inventory allowance of $800,000, which was partially offset by the $64,000 recovery
from deferred income tax. Fiscal 2021 income was positively affected by the significant one-time gain on the forgiveness of the Company’s
PPP loans. The weighted number of shares outstanding were 3,493,807 in fiscal 2022 and 3,486,537 in fiscal 2021.
Pet, Fencing and Other - JCC
The sales levels of certain other products, particularly
gates and large kennels, declined from their elevated pandemic levels and resulted in negative year-over-year comparisons. These sales
were impacted by several issues, particularly supply chain and logistic delays, and by temporary disruptions originating with some of
our customers, including purchase restrictions due to inventory management decisions and buyer turnover. A number of our other products,
however, recorded significant sales gains in 2022, including the recently introduced Lifetime Steel Posts® and Eurofence products.
Lumber sales also increased in fiscal 2022 over the prior year. We were also successful in raising our selling prices in the current period
which partially offset our higher raw material and logistic costs.
Sales at JCC were $57,915,828 in fiscal 2022 compared
to sales of $51,732,129 in fiscal 2021. Operating income at JCC for 2022 was $1,257,449 compared to $4,052,624 in 2021, which was a decrease
of $2,795,175, or 69%. Significantly higher costs, including for raw materials, energy, and shipping and logistics, reduced our margins
in fiscal 2022. Our 2022 results were also negatively affected by an inventory allowance of $800,000. This allowance was partially for
the inventory currently located in Europe, as management has decided to temporarily withdraw from the European market due to the difficult
economic climate, and for the clearance of certain obsolete inventory.
The following table shows
a breakdown between the pet, fencing and other categories in this segment.
Sales in Millions of Dollars Percent of Total Sales
Fiscal Year Pet Fencing Other Pet Fencing Other
Industrial Wood Products - Greenwood
Sales at Greenwood in fiscal 2022 were $2,626,209,
which was a nominal increase of $28,933 from sales of $2,597,276 in fiscal 2021. Greenwood’s sales have been heavily impacted by