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 our business, and any
of the following risks could affect our business, its financial condition, its potential profits or could result in you losing your entire
investment. 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 our financial condition and the price of our common shares.
Risks Related to Our Business
Due to the uncertainty of the current global
tariff and trade environment, we will require additional cash to fund our operations in the near and longer term
Our management must continually evaluate whether
there are conditions or events, considered in the aggregate, that raise significant concerns in our ability to manage our cash flow and
our business. Failure to manage our cash inflows and outflows effectively can have a material adverse impact on our operations, ability
to order products in a timely manner, and serve our customers effectively. The recent volatile tariff and global trade situation created
many challenges for our ability to effectively manage our supply chain, product costs, customer pricing, and overall operations. In light
of these developments, we believe that it is essential that we take immediate steps to strengthen our liquidity position to enable us
to continue to weather the uncertainties that still exist in the global markets. Accordingly, our management and Board have reformulated
our near-term and long-term strategies, which now focus on strengthening our liquidity position, which may involve selling our real estate
assets and excess inventory, as well as increasing our borrowing capacity under our credit line with Northrim or securing alternative
financing. We are dependent on our credit line which permits us to borrow funds against accounts receivable and inventory. However, our
present borrowing is approaching the maximum allowed under the credit line’s current funding calculations. Although we are in discussions
with Northrim to increase the amount of credit available to us, we are still in need of additional funding to bolster our cash availability
for the near and long term. There can be no assurance that these discussions will result in an increase in borrowing capacity, which,
if it does not, would have a material adverse effect on our ability to operate our business in the normal course and significantly impact
our ability to order product for the upcoming Spring selling season, which would in turn negatively impact our operations, our ability
to develop and execute our business plan, our financial condition, our liquidity and our continuation as a going concern will be subject
to a high degree of risk and uncertainty.
We need additional funding to shield us from
the continuing challenges that have severely impacted us and other companies as a result of the recent tariff and global economic situation,
execute our business plan and continue operations in the normal course. If capital is not available to us when, and in the amounts needed,
we could be required to liquidate our inventory and assets at below market prices, delay purchasing of products, or cease or curtail
operations, which could materially harm our business, financial condition and results of operations. There can be no assurance that we
will be able to raise the capital when we need it to continue our operations.
Any substantial doubt about our ability to continue
as a going concern may affect the price of our common stock, may impact our relationship with third parties with whom we do business,
including our customers, vendors, lenders and employees, and may impact our ability to raise additional capital.
Needed financing may not be available to us on
acceptable terms, or at all. Our ability to obtain additional financing will be subject to several factors, including market conditions,
our operating performance and investor sentiment and any financial or operating covenants required. These factors may make the timing,
amount, terms or conditions of additional financing unattractive, even if available. If we cannot generate sufficient funds from operations
or raise additional capital on a timely basis when needed, our growth or operations could be impeded and our ability to continue as a
going concern would be materially impacted.
We have substantial liquidity needs and
may not be able to obtain sufficient liquidity to operate in the normal course and if we cannot satisfy our liquidity needs, we may be
forced to seek protection under the bankruptcy code.
Although we have reduced our capital budget,
our business remains capital intensive. In addition to the cash requirements necessary to fund ongoing operations, we need to purchase
inventory in anticipation of our upcoming Spring selling season. If we cannot submit and pay for purchase orders in a timely manner,
our ability to provide product and satisfy demand may be impaired. We can provide no assurance that our current liquidity is sufficient
to allow us to continue to operate our business or meet our projected operating needs or that we will be able to raise needed capital
through real estate, inventory and assets sales. In the event we cannot obtain additional capital or alternative financing on acceptable
terms, we may need to reduce the scale of our operations, which may result in curtailing non-profitable business lines and business lines
that do not contribute significantly to profitability. If we cannot obtain sufficient liquidity to operate in the normal course, we may
be forced to seek protection under the U.S. Bankruptcy Code, including initiating liquidation proceedings thereunder, in which event,
our business operations would continue, but under the supervision of the bankruptcy court. It is possible that a trustee would be appointed
or elected by creditors to liquidate our assets for distribution in accordance with the priorities established by the bankruptcy code.
We have a history of operating losses and
may not be able to achieve or sustain profitability in the future; we are substantially dependent on our ability to successfully market
and sell our products at reasonable margins.
We have, in recent years, operated at a loss
and have been highly dependent on sales of higher margin products. However, the imposition of significant tariffs on goods manufactured
in most countries outside the U.S. has substantially eroded historical and projected margins, and in some cases, have resulted in costs
that could not be passed on as price increases. Our prospects for achieving and sustaining profitability in the future will depend primarily
on how successful we are in increasing sales, prices and margins. If we are not successful in executing our business plan, we may not
achieve or sustain profitability and even if we do so, we may not meet sales and margin expectations. Also, even if we are successful
in executing our business plan, our ability to achieve and sustain profitability in the future will also depend on our ability to manage
our operating costs, and profitability may fluctuate from period to period due to our level of investments in sales and marketing, promotional
activities, inventory purchases and timing of supply chain logistics and payments.
Our restructurings and associated organizational
changes may not adequately reduce our expenses and our inability to satisfy our liquidity needs, may lead to additional workforce attrition,
and may cause operational disruptions.
We have recently experienced workforce attrition
in various functions across our business, which may be attributable to our prior corporate restructurings, our current business circumstances,
a combination of both, or other factors. Our efforts to adjust our operations with the reduced workforce may not be successful in preventing
disruption to our business, and with the reduced workforce, we lack redundancy in important functions across our business. We are increasingly
relying on the services of contract sales representatives or other similar arrangements in response to substantial sales force attrition.
Further loss of one or more of our key employees, additional loss of multiple employees in particular functions, and/or our inability
to attract replacement or additional qualified personnel could substantially impair our ability to operate our business and implement
our business plan, which would have a material adverse effect on our business and financial condition, as well as our stock price.
In the event we are unable to satisfy our liquidity
needs, we may experience employee attrition, and our employees may face considerable distraction and uncertainty. A loss of key personnel
or material erosion of employee morale could adversely affect our business and results of operations. Our ability to engage, motivate
and retain key employees or take other measures intended to motivate and incentivize key employees will be limited. The loss of services
of members of our senior management team and other key employees could impair our ability to execute our business strategies and implement
operational initiatives, which may have a material adverse effect on our business, cash flows, liquidity, financial condition and results
of operations.
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 goods, including steel and aluminum products, in addition to country
specific tariffs, including China, has the effect of increasing our costs and negatively affecting our business. There also exists the
possibility of new or increased tariffs being levied on manufactured goods imported into the United States. 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 also face uncertainty in the interpretation
of new tariffs and their applicability, including with respect to customs valuation, product classification and country-of-origin determinations.
Although we and our suppliers seek to comply with applicable customs laws and regulations, the application of rules regarding new tariffs
can be subject to varying interpretations or future re-interpretations. It is possible that U.S. or other relevant authorities could,
upon review or audit, disagree with the valuation, rules of origin or classification methods applied to certain products. Any such disagreement
could result in the retroactive assessment of additional duties with interest, the imposition of penalties, or other enforcement actions
without the ability to mitigate such penalties, thereby adversely affecting our operations or financial results. Furthermore, certain
of our competitors may be better positioned than us to withstand or react to border taxes, tariffs or other restrictions on global trade
and as a result, we may lose market share to such competitors. Due to broad uncertainty regarding the timing, content and extent of any
regulatory changes in the U.S. or abroad, we cannot predict with certainty the impact, if any, that these changes could have to our business,
financial condition and results of operations. However, the imposition of various tariffs since February 2025 has had a significant negative
impact on our costs, margins and financial condition.
If our top customers were lost, we could
experience lower sales volumes.
For the fiscal year ended August 31, 2025 our
top ten customers represented 97% of our total sales, Our single largest customer was responsible for 39% of our total sales and our
two largest customers were responsible for 74% of total sales in 2025. 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 are dependent upon third-party manufacturers
and suppliers for substantially all of our products
We do not have any manufacturing capabilities
and rely on a limited number of contract manufacturers located outside the United States for the majority of our products. Our reliance
on contract manufacturers involves certain risks, including:
· Capacity constraints;
· Inability to control the quality of the finished products;
· Inability to control manufacturing and delivery schedules; and
If our products are delayed or cannot be supplied
in a timely manner, we risk losing revenue and customers. Developing alternate sources of supply for our products that meet our requirements
may be time-consuming, difficult, and costly, and we may not be able to source our products on terms that are acceptable to us, or at
all, which will have a negative effect on our revenue and financial condition.
We face significant competition, which
could reduce the demand for our products.
Our revenue depends in part on maintaining and
growing the sales of our current products in both existing and new markets, but also by improving existing products and developing new
products. There is substantial competition among companies in each of our market sectors, and a number of companies market products that
compete directly with our products. Current and potential customers may consider these products from our competitors to be superior to
or less expensive than our products. Some of these competitors may also have greater financial, manufacturing, and sales and market resources
than us. If we are unable to effectively compete with these other products and companies, we would likely lose market share which would
result in a decrease in revenue and profitability.
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. Such disruptions may include
adjustments to ocean shipping schedules, labor strikes or other job-related actions by workers within the supply chain, geopolitical
unrest, longshoreman or rail strikes, geopolitical unrest, or government actions. This could result in a decrease in sales orders to
us and we would experience a loss in profitability. Additionally, certain of our customers may impose penalties for orders not delivered
on time, which could be significant and have a material adverse effect on our margins and financial results.
Inflation could adversely affect our business
Inflation has many impacts on our business, including
increasing our direct costs for raw materials, manufacturing, shipping and logistics, labor, and energy. Our ability to pass on these
higher costs to our customers is limited. When we are able to increase our selling prices, it may be delayed several months after we
first incur the higher costs and we may not be able to fully recoup the difference. In addition, high rates of inflation can reduce consumer’s
discretionary spending and reduce demand for our products. These actions could have a negative effect on our business, results of operations,
or financial condition.
Outdoor product sales are highly seasonal
and subject to adverse weather.
Our fencing and outdoor products are primarily
bought by consumers during the spring and summer. The majority of our revenues and income from these products occur during our 3rd
and 4th quarters of our fiscal year (March through August). Demand for these products is highly affected by the weather. Adverse
weather, including abnormally wet conditions or unseasonably hot or cold temperatures, can negatively affect demand for our products
and cause our customers to delay, or reduce, their orders. This would have a negative effect on our business, results of operations,
or financial condition.
Competitors may infringe on our intellectual property which
would negatively affect our business and financial condition
We rely on our intellectual property rights,
including patents, patent applications, and trademarks, to provide us with competitive advantages and protect us from theft of our intellectual
property. We believe that our patents are valid, enforceable, and valuable. If third parties infringe on our intellectual property,
we may be forced to pursue litigation which would consume significant amounts of our management and financial resources. There is no
guarantee that we will have the financial resources necessary to engage in litigation, or that any litigation we do pursue will result
in a favorable outcome. Such infringements or unfavorable outcomes of litigation would have a negative effect on our business, results
of operations, or financial condition.
Our products may have issues that could
lead to product liability claims
The products we manufacture and distribute expose
us to potential product liability risks. Although we seek to insure against such risks, there can be no assurance that such insurance
coverage will be sufficient to cover any claims or adverse legal judgements, and our costs to defend any litigation could be significant.
A successful product liability claim in excess of our insurance coverage could have a material negative effect on our business and financial
condition. In addition, it could significantly increase our costs of this insurance on commercially reasonable terms or make it unavailable
to us altogether.
We depend on sophisticated information technology systems to
operate our business and a cyberattack or other breach of these systems, or a system error, could have a material adverse effect on our
business and results of operations.
We are increasingly and substantially dependent
upon information technology systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store,
process, and transmit sensitive data on our networks and systems, including our proprietary or confidential business information and
personal information with respect to our employees, customers, and our business partners. In the ordinary course of our business, this
type of data is also collected, stored, processed, and transmitted on the networks and systems of business partners and vendors from
whom we purchase software and/or technology-based services.
The size and complexity of our and third-party
information technology systems and infrastructure, and their connection to the Internet, make such systems potentially vulnerable to
service interruptions, system errors leading to data loss, data theft, unauthorized disclosure, and/or cyberattacks. These incidents
could result from inadvertent or intentional actions or omissions by our employees and consultants, or those of our business partners
and vendors, or from the actions of third parties with criminal or other malicious intent. Notwithstanding our efforts to combat cyber
threats, including through the use of third party software, consultants and monitoring agents, as with most other companies, our information
technology systems have been, and will likely continue to be, subject from time to time to computer viruses, malicious codes, unauthorized
access, and other forms of cyberattack, and we expect the sophistication and frequency of such efforts to continue to increase.
We are increasingly relying on the networks and
systems of third-party vendors as we seek to migrate the storage and processing of business and other information from our own computer
servers and networks to “cloud”-based storage and software systems and services maintained by third-party vendors. While
we believe there are potential cost savings and other benefits from this migration strategy, we do not control how third-party vendors
maintain their networks and systems, what technology they implement to protect their systems from cyber-attack or other malicious behavior,
or what corrective or remedial measures they would take in response to service issues or a criminal or other malicious attack. Also,
many of these vendors are large, well-known technology companies that maintain substantial volumes of information for a large number
of companies, and whose systems may therefore be larger targets for criminal or other malicious actors as compared to our own networks
and systems. Accordingly, our migration to third-party networks and system could increase the risk that business and other information
maintained by us could be subject to a breach, theft, unauthorized disclosure, or other forms of cyberattacks even if we are not specifically
targeted.
Breaches of information technology systems and
technology can be difficult to detect, and any delay in identifying any such incidents may lead to increased harm of the type described
above. While we have implemented security measures to protect our information technology systems and infrastructure, and monitor such
systems and infrastructure on an ongoing basis for any current or potential threats through sophisticated third party cyber defense companies,
there can be no assurance that these measures will prevent the type of incidents that could have a material adverse effect on our business
and results of operations.
On October 15, 2025, we learned that a threat
actor had gained unauthorized access to portions of our information technology (“IT”) environment and claimed to have unlawfully
accessed certain Company information and data. We immediately activated our cyber incident response plan to contain the intrusion, assess
and investigate the incident and implement remedial measures. We also immediately notified law enforcement, including the FBI, and retained
external cybersecurity experts to assist. Based on our investigation to date, we believe that the cybersecurity incident consisted of
unauthorized access and deployment of encryption and monitoring software by a third party to a portion of our internal corporate IT systems.
The incident caused disruptions and limitation of access to portions of our business applications supporting aspects of our operations
and corporate functions, which we voluntarily took offline as a precautionary measure. Based on the information reviewed to date, we
believe the unauthorized activity has been contained and we were able to bring the impacted portions of our IT systems and individual
computer devices back online and operate at full capacity within a week of detection of the unauthorized access.
Although we ascertained that certain information
was exfiltrated, we are still investigating the extent of compromise of any sensitive information contained within the accessed IT systems.
However, it is believed that the threat actors unlawfully accessed certain computer systems and exfiltrated images of video meetings
and computer screens that may contain sensitive information. The threat actors have threatened to release this information publicly if
we did not provide them with a monetary payment, which we did not. The threat actors have made public certain of our information and
that of some of our vendors and customers. However, we do not believe that the threat actor was able to infiltrate the computer systems
of any of our customers or vendors. We have taken additional cybersecurity measures in response to this incident including closing off
the point of unlawful access and bolstering our cyber defensive capabilities, including use of third party cybersecurity experts. At
this time, we believe that the costs associated with these activities will be largely covered by our cyber security insurance policy
and that the disruption to our operations will likewise be covered by adequate insurance. However, there can be no assurance that our
insurance carriers will accept liability under these policies, in which event, we would be compelled to pay the expenses of our cyber
experts directly, which would increase our costs and have a material adverse effect on our future financial performance.
As the investigation
of the incident is ongoing, the full scope, nature and ultimate impact of the incident are not yet completely known. We have no current
evidence that any personally identifiable information of any employees, customers, suppliers or vendors has been compromised, but our
analysis and review of the potential compromised systems and data continues.
Compliance with global privacy and data
security requirements could result in additional costs and liabilities to us or inhibit our ability to collect and process data globally,
and our failure to comply with data protection laws and regulations could lead to government actions, which could cause our business
and reputation to suffer.
Evolving state, federal, and foreign laws, regulations
and industry standards regarding privacy and security apply to our collection, use, retention, protection, disclosure, transfer and other
processing of personal data. Privacy and data protection laws may be interpreted and applied differently from country to country and
state to state in the U.S. and may create inconsistent or conflicting requirements, which can increase the costs incurred by us in complying
with such laws, which may be substantial. For example, the European Data Protection Regulation (“GDPR”) imposes a broad array
of requirements for processing personal data, including elevated disclosure requirements regarding collection and use of such data, and
the California Consumer Privacy Act (“CCPA”) substantially expands privacy obligations of many businesses, including requiring
new disclosures to California consumers, imposing new rules for collecting or using information about minors and affording consumers
the right to know whether their data is sold or disclosed, the right to request that a company delete their personal information, the
right to opt-out of the sale of personal information and the right to non-discrimination in terms of price or service when a consumer
exercises a privacy right. Like the GDPR, the CCPA establishes potentially significant penalties for violation. The California Privacy
Rights Act (“CPRA”), which became operational on July 1, 2023, expands on the CCPA, creating additional consumer rights and
protections, including the right to correct personal information, the right to opt out of the use of personal information in automated
decision making, the right to opt out of sharing consumer’s personal information for cross-context behavioral advertising, and
the right to restrict use of and disclosure of sensitive personal information. Similar restrictions are also included in the privacy
laws of other states in the U.S.
We are evaluating our privacy program as a result
of these privacy laws, and it is likely we will incur additional expense and investment of resources in our efforts to comply. If we
are unable to implement a suitable compliance program relating to these or future privacy laws and regulations, we may face increased
exposure to regulatory actions, including substantial fines and penalties.
We have identified significant deficiencies
in our internal controls. If we are unable to remediate these deficiencies, or if we experience additional significant deficiencies or
material weaknesses and are unable 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, negatively affect investor confidence in the Company, and subject us
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 audit of
our financial statements for the year ended August 31, 2025. Based on this process, we identified the following significant deficiencies
in our internal controls:
Although these deficiencies do not rise to the
level of material weaknesses and no material weaknesses have been identified, and our disclosure controls and procedures were effective
at the reasonable assurance level as of August 31, 2025, our management is undertaking remediation measures to ensure that our disclosure
controls and procedures remain effective.
However, we cannot guarantee that in the future
we will not identify any material weaknesses or significant deficiencies in connection with this ongoing process, which could result
in significant expense to remediate any such deficiencies. Additionally, any inability to report our financial results accurately could
result in untimely filing of our public reports, a halt in trading of our securities, shareholder lawsuits and regulatory inquiry or
investigations.
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
such an outbreak. 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.
Risks Related to Our Common Shares
We may issue additional shares of common
stock, securities convertible into common stock, or securities with superior rights to our common stock, in the future, including to
raise capital, for strategic transactions, or to attract and retain employees, which would have a dilutive effect on existing stockholders.
The issuance of a substantial number of additional
shares of our common stock, securities convertible into common stock, or securities with superior rights to our common stock, or the
perception that such sales could occur, could have a material adverse effect on the market price of our common stock. In addition, future
sales and issuances of our common stock will result in dilution to our existing stockholders, and new investors could gain rights superior
to those of our existing stockholders. This dilution would reduce the ownership percentage and voting power of existing stockholders
and could also cause a decline in earnings per share, which could further reduce the market price of our common stock.
If we raise additional funds by selling preferred
stock or securities, including debt securities, convertible into shares of our common stock, the new shares may have rights, preferences
or privileges senior to those of the rights of our existing common shares. If common shares are issued in return for additional funds,
the price per share could be lower than that paid by our current stockholders. The result of these actions would be a decrease of each
present shareholder’s relative percentage interest in our Company.
Our stock price may be volatile and you
may lose all or a part of your investment.
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 9,300 shares
on NASDAQ for the fiscal year ended August 31, 2025. With this limited trading volume, investors could find it difficult to purchase
or sell our common stock or experience significant volatility in the price of our common stock.
Our stock price could fluctuate significantly
due to a number of factors, including:
· regulatory developments in the U.S. and foreign countries;
· variations in our anticipated or actual operating results;
· conditions or trends in our industry generally; and
Many of these factors are beyond our control,
and we believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance.
If our revenues in any particular period do not meet expectations, we may not be able to adjust our expenditures in that period, which
could cause our operating results to suffer. If our operating results in any future period fall below the expectations of securities
analysts or investors, our stock price may fall by a significant amount.
Future sales of our common stock by shareholders
could cause our stock price to decline, and future issuances of common stock could cause substantial dilution.
If our existing stockholders sell a large number
of shares of our common stock, or the public market perceives that existing stockholders might sell shares of common stock, the market
price of our common stock could decline significantly. Sales of substantial amounts of shares of our common stock in the public market
by our executive officers, directors, 5% or greater stockholders or other stockholders, or the prospect of such sales, could adversely
affect the market price of our common stock. To the extent that option holders exercise outstanding options or we issue additional shares
in the future, there may be further dilution and the sales of shares into the marketplace could cause our stock price to drop further.
We will continue to incur substantial costs and obligations
as a result of being a public company.
As a publicly-traded company, we will continue
to incur significant legal, accounting and other expenses. In addition, new and changing laws, regulations and standards relating to
corporate governance and public disclosure for public companies, including the Dodd-Frank Wall Street Reform and Consumer Protection
Act, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), regulations related thereto and the rules and regulations
of the United States Securities and Exchange Commission (“SEC”) and the Nasdaq Stock Market, have increased the costs and
the time that must be devoted to compliance matters. We expect these rules and regulations will continue to increase our legal and financial
costs and lead to a diversion of management time and attention from revenue-generating activities.
We are subject to reporting and other obligations
under applicable Canadian securities laws, SEC rules and the rules of the Nasdaq Stock Market. These reporting and other obligations
place significant demands on our management, administrative, operational and accounting resources. Moreover, any failure to maintain
effective internal controls could cause us to fail to meet our reporting obligations or result in material misstatements in our consolidated
financial statements. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results could be
materially harmed, which could also cause investors to lose confidence in our reported financial information, which could result in a
lower trading price of our common shares.
ITEM 1B. UNRESOLVED STAFF COMMENTS
--- No Disclosure Necessary ---
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
Our Board recognizes the critical importance
of maintaining the trust and confidence of our customers, suppliers, business partners and employees.Our Board and our Audit Committee
are actively involved in oversight of our risk management program, and cybersecurity represents an important component of our overall
approach to enterprise risk management (“ERM”). Our cybersecurity policies, standards, processes, and practices are fully
integrated into our ERM program and are based on recognized frameworks and applicable established industry standards. In general, we seek
to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security
and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively
responding to cybersecurity incidents when they occur.
As one of the critical elements of
our overall ERM approach, our cybersecurity program is focused on the following key areas:
Notwithstanding the measures we have put in place
internally and through third party industry experts, on October 15, 2025, we learned that a threat actor had gained unauthorized access
to portions of our information technology (“IT”) environment and claimed to have unlawfully accessed certain Company information
and data. We immediately activated our cyber incident response plan to contain the intrusion, assess and investigate the incident and
implement remedial measures. We also immediately notified law enforcement, including the Federal Bureau of Investigation (FBI), and retained
external cybersecurity experts to assist. Based on our investigation to date, we believe that the cybersecurity incident consisted of
unauthorized access and deployment of encryption and monitoring software by a third party to a portion of our internal corporate IT systems.
The incident caused disruptions and limitation of access to portions of our business applications supporting aspects of our operations
and corporate functions, which we voluntarily took offline as a precautionary measure. Based on the information reviewed to date, we
believe the unauthorized activity has been contained and we were able to bring the impacted portions of our IT systems and individual
computer devices back online and operate at full capacity within a week of detection of the unauthorized access.
Although we ascertained that certain information
was exfiltrated, we are still investigating the extent of compromise of any sensitive information contained within the accessed IT systems.
However, it is believed that the threat actors unlawfully accessed certain computer systems and exfiltrated images of video meetings
and computer screens that may contain sensitive information. The threat actors released a portion of this information publicly and that
of some of our vendors and customers since we had not acceded to their demand for a monetary payment. However, we do not believe that
the threat actor was able to infiltrate the computer systems of any of our customers or vendors. We have taken additional cybersecurity
measures in response to this incident including closing off the point of unlawful access and bolstering our cyber defensive capabilities.
We believe that there will be additional costs associated with these activities but that the disruption to our operations and the costs
associated with our cybersecurity experts will largely be covered by adequate insurance. However, there can be no assurance that our
insurance carriers will accept liability under these policies, in which event, we would be compelled to pay the expenses of our cyber
experts directly, which would increase our costs and have a material adverse effect on our future financial performance.
As the investigation of the incident is ongoing,
the full scope, nature and ultimate impact of the incident are not yet completely known. We have no current evidence that any personally
identifiable information of any employees, customers, suppliers or vendors has been compromised, but our analysis and review of the potential
compromised systems and data is continuing.
Governance
Our
Board is engaged in the oversight of cybersecurity threat risk management.Additionally,
the Audit Committee regularly receives updates on cybersecurity risks and the security and operations of our information technology systems
from our Chief Financial Officer.The
Board and the Audit Committee also receive prompt and timely information regarding any cybersecurity incident that meets established
reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed.
Management
is responsible
for developing
cybersecurity programs. Our
expertise in IT and cybersecurity generally has been gained from a combination of education, best practices and prior experience.They
are informed by their respective cybersecurity teams about, and monitor, the prevention, detection, mitigation and remediation of cybersecurity
incidents as part of the cybersecurity programs described above. As evidenced by the cybersecurity incident described above, no
combination of defensive measures are infallible. However, we are confident that we have established robust and reasonable measures and
defenses consistent with industry standards and our Company’s operations and use of internet-related systems. While this landscape
is continually changing, we attempt to be knowledgeable and flexible with regard to the protection of our data and that of our partners.
ITEM 2. PROPERTIES
Our executive offices are located at 32275 NW
Hillcrest Street, North Plains, Oregon. 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. In fiscal 2021, we 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 our executive offices, and is used as a distribution center to service the customer base for JCC and Greenwood. During fiscal 2022,
we leased an additional 4,700 square feet of warehouse space located in North Plains, Oregon.
During fiscal 2010, we purchased a 2,000 square
foot building adjacent to our main facilities that previously housed a seed testing lab located at 31895 NW Hillcrest Street, North Plains,
Oregon. We 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, we renovated this building into an innovation
center which focuses on new product development. The Company has since moved the operations formerly located in this building into its
executive office space, and has recently listed this building for sale at a listing price of $795,000.
The property associated with JCSC, which is owned,
consists of 11.6 acres of land, 105,000 square feet of buildings, rolling stock, and equipment. It was used for seed processing and storage.
It is located at 31345 NW Beach Road, Hillsboro, Oregon, which is adjacent to North Plains, Oregon. With the closure of JCSC’s
business, the property is considered surplus to our needs and is currently listed for sale or lease at a listing price of $7,223,000.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may become involved in
various lawsuits and legal proceedings, which arise in the ordinary course of business. We are currently unaware of any material pending
legal proceedings to which we are party or of which our property is the subject. However, we may at times in the future become involved
in litigation in the ordinary course of business, which may include actions related to or based on our intellectual property and its
use, customer claims, employment practices and employee complaints and other events arising out of our operations. When appropriate in
management’s estimation, we will record adequate reserves in our financial statements for pending litigation. Litigation is subject
to inherent uncertainties, and an adverse result in any such matters could adversely impact our reputation, operations, and our financial
operating results or overall financial condition. Additionally, any litigation to which we may become subject could also require significant
involvement of our senior management and may divert management’s attention from our business and operations. We are not currently
involved in any significant legal proceedings.
In fiscal 2021, we initiated arbitration against
a former distributor asserting a breach of the distribution agreement and seeking damages. In February 2023, the arbitrator issued its
decision and ruled in our favor on the majority of all of our claims. A damages hearing was held in August
2023. In September 2023, we settled this 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 our common shares is “JCTC” and
the CUSIP number for the stock is 47733C-20-7. The common shares formerly traded under the symbol “JCTCF” until October 9,
2024. Our common shares 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 our 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 our common shares.
On November 20, 2025 there were 30 registered
stockholders and 3,518,119 of our common shares outstanding.
Dividends
We have not declared any dividends since incorporation
and we do not anticipate that we will do so in the foreseeable future. Our present policy is to retain earnings for use in our operations
and expansion of our business. There are no current restrictions that limit our ability to pay dividends on common equity or that are
likely to do so in the future. Any dividends paid by us to U.S. stockholders would be subject to Canadian withholding tax.
Recent Sales of Securities: Use of Proceeds from Securities
We have not sold securities in the last three
fiscal years.
Purchases of equity securities by the issuer and affiliated
purchasers
We have not repurchased any common shares
during the years ended August 31, 2025 or August 31, 2024.
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:
· Pet, Fencing and Other
· Industrial wood products
· Seed processing and sales
· Corporate and administrative services
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.”
Quarterly Results
The following table summarizes quarterly financial
results in fiscal 2025 and fiscal 2024. (Figures are thousands of dollars except per share amounts).
For the Year Ended August 31, 2025
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
For the Year Ended August 31, 2024
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
RESULTS OF OPERATIONS
Our fiscal 2025 results were disappointing, as
we are challenged by the increasing import tariffs, continued negative consumer sentiment, and certain operational matters discussed
below. These issues significantly reduced our revenues, and negatively impacted our margins and operating results. Sales for fiscal 2025
declined by $5,847,036, or 12%, to $41,298,140. Our net loss for fiscal 2025 was ($4,130,092), or ($1.18) per share.
The most serious issue currently affecting our
business operations remains the new worldwide import tariffs, primarily on our imported metal products. Since the imposition of these
new tariffs began in February 2025, they have caused immense turmoil in our markets, both directly and indirectly. In addition to eroding
consumer confidence, the impacts include increases to our supply chain and logistics costs. These higher costs resulted in a double-digit
negative impact on our overall gross margins across the majority of our product lines. We have been able to somewhat mitigate a portion
of these new tariff costs through our multi-country sourcing initiative. We recently began production of our Lifetime Steel Posts®
in lower-tariffed Vietnam which should help us reduce our direct tariff costs and meet the higher demand for the product from the continuing
roll-out of our in-store displayers.
These rapid and unpredictable changes to the
tariff rates required significant attention from our management and financial teams, which diverted time and effort from our other operational
requirements. As an example, the global rate on steel and tariff imports from all countries was set at 25% in March 2025. On May 30th,
it was announced that the rate would double to 50% and take effect in just 5 days. This left us with no time to plan or adjust import
shipments, some of which were already in transit. When they left our suppliers, they were budgeted for one rate, but when they arrived
on U.S. soil that rate had since doubled.
Although these higher tariff rates were announced
and took effect very quickly, our ability to pass on the new tariff costs to our customers was limited. Our customer relationships are
such that any of our price increases must be consented to by the customer. The customer may not agree to any increases or negotiate lower
price increases, and any changes may only be accepted after 30 to 90 days, or longer, if at all. Many of our customers did not immediately
accept higher prices for our products, which we adjusted in response to the increased costs associated with the tariffs and global trade
disruption. By September, those remaining customers agreed to accept shipments with the higher prices which were implemented in the following
weeks.
The frequent changes to tariff rates since February
also caused some of the price changes we instituted in response to become obsolete before we could pass them on to our customers. This
forced us to spend time to recalculate the new prices and begin the process of presenting them to, and negotiating with, our customers
again, which further affected our ability to recapture our higher costs through increasing our sale prices. This resulted in an overall
decrease in sales and forced us to temporarily absorb much of these higher tariff-related costs.
Although we consult with experts and legal counsel
to accurately interpret how to properly apply the new tariff rates to our products to ensure compliance and to make sure our prices remain
cost competitive, many of our customers paused their purchasing because of the general uncertainty about the tariffs and their costs.
They have been reluctant to make long-term purchases at contracted prices that may decline based on rapidly changing tariff rates. Although
both retailers and consumers will eventually adjust their buying to accept higher prices over time, it dampens demand in the short-term.
These increased costs and the ongoing uncertainty over tariff assignments and rates will likely continue to negatively affect our margins
and demand for certain of our products from our customers into fiscal 2026.
While the Company took actions to attempt to
mitigate these unforeseen events, such as pivoting to alternative suppliers outside of China through an intensive search process which
began two years ago, and reducing headcount by nearly 30%, these measures were not sufficient to withstand the headwinds we faced in
2025. However, we believe that the global economic environment is stabilizing and that customers and supply chain partners are employing
reasonable and innovative policies to maintain equilibrium and continuity of commerce. Accordingly, we intend to focus on improving margins
on our core fencing products through these reestablished partnerships, new sales channels, and by more controlled purchasing management.
During fiscal 2025, we also experienced operational
issues with our agreement to supply cedar fencing to one of our larger consignment customers. Jewett-Cameron was originally founded as
a lumber brokerage business, and we have maintained this segment as our product offerings have evolved over time. In 2023, we helped
a major customer with their lumber supply after they lost their primary source of western red cedar fencing. At that point, we entered
into a consignment program with this customer which provided them with a ready source of cedar fencing and provided us with a steadier
flow of orders that stabilized the year-over-year lumber sale fluctuations that we commonly experienced as a secondary supplier to multiple
big box retailers. It is customary to purchase ample supply ahead of the increase in demand each Spring, but in fiscal 2025 we failed
to acquire an adequate supply to meet our actual demand. As a result, we were unable to fulfill all our customers’ orders during
the third quarter, and our wood fencing sales were down 33% compared to the prior year’s third quarter. To ensure we could meet
their needs for the remainder of the busy summer season, we quickly moved to secure additional Western Red Cedar from our supply partners.
Unfortunately, much of the additional cedar fencing inventory was not needed by the customer. Under the consignment agreement, we are
required to maintain enough inventory on hand to satisfy a maximum capacity requirement (“max cap”). This max cap, which
is substantially higher than our average weekly sales, was not utilized and extended into September, which is past the fencing high demand
season in these stores’ region. Therefore, we ended the 2025 fencing season with substantial excess cedar fencing inventory on
hand. We have implemented important process changes to prevent other inventory shortages. However, we were informed by this customer
in November 2025 of their intention to transition away from the consignment agreement in calendar year 2026. Although the consignment
program provided us with meaningful revenue, it eroded the margin and profitability we were accustomed to in our cedar sales prior this
consignment arrangement as it required us to purchase and hold higher levels of inventory, and the added length of time to invoice greatly
reduced the profitability of these sales. We are currently in discussions with this customer, as well as other third parties, regarding
the purchase of our excess lumber inventory leading up to the 2026 fence building season.
The rollout of our Lifetime Steel Posts®
(“LTP”) in-store displayers continues to show successful results. The replenishment requirements for the displayers have
been steady and meeting expectations. During the third quarter, we temporarily paused deploying new display units to prioritize replenishing
existing display units. Capacity constraints on both production and logistics at the factories outside of China temporarily led to a
limited supply of new posts. The higher tariff rates on Chinese goods caused many U.S. companies to quickly shift production to other
nations, and the available logistic infrastructure in these other countries has been overtaxed by the rapid increase in production and
shipping demands. Therefore, we prioritized replenishing existing display units with our temporarily limited supply of new posts.
With the success of our in-store display units
for both LTP and our established Adjust-A-Gate® products, we are developing new versions of displayers for both products. Our current
display units are optimized for big box retailers but many other home improvement retailers may not have the shelf or floor space to
fully deploy the existing displayers. We are working on new, smaller format displays for these smaller retailers. We are also exploring
developing similar units for additional products in our core product lines.
The pet market continues to suffer from low consumer
demand, and we remain burdened with high inventory levels, particularly in metal crates and kennels. The market has been slow to recover,
and our on-hand inventory of price-advantaged pre-tariff inventory has not received the interest from retailers we anticipated. We are
now engaging with non-traditional purchasers with the intent to clear a substantial amount of this older inventory from our warehouse
and recapture some of our costs. Because we expect to sell this inventory at lower prices, we increased our allowance for obsolete inventory
by $650,000 in fiscal 2025 over our allowance in fiscal 2024. We are also reducing our costs, including refining our development efforts
to concentrate on improving our existing products, both in design and packaging, that can potentially provide market advantages.
Our MyEcoWorld® sales increased in fiscal
2025 over fiscal 2024 as consumers continue to look for high quality sustainable products as alternatives
to disposable traditional single-use plastics. Some of this increase is due to shifting our entire LuckyDog® compostable
dog waste bag line to a new MyEcoWorld® product. One part of our growth strategy for this line was to enter the grocery store segment.
During fiscal 2025, we secured our first placement with the launch of Pet Waste Bags into 59 Tops Friendly Markets across the Northeast
beginning in late February. However, the imposition of the new tariffs beginning in February 2025 made our products less price competitive
and growth in the grocery segment much more challenging. Instead, we will be focusing on expanding upon our successful introductions
into big box stores where we have existing strong supplier relationships, and into foreign markets that are unburdened by the new U.S.
tariffs. We have been receiving strong demand from big box stores in Mexico where the absence of U.S. tariffs has made the product very
competitive.
At Greenwood, sales in fiscal 2025 rose by 2%
over our sales in fiscal 2024. Although demand for transit focused products continues to rebound from the pandemic lows as more workers
return to the office, a transit seat shortage during fiscal 2025 restricted new bus construction and orders for our transit products.
Demand for these transit products improved as the seat shortage was largely resolved by the fourth quarter of fiscal 2025. We have recently realigned
some personnel’s duties to provide support to Greenwood by working to open new sales channels and adding new customers.
We still believe this segment has growth potential in both our primary transit sector and in new industrial markets. However, as we intend
to concentrate our operations on the fence and outdoor segment, we are evaluating strategic alternatives for Greenwood and its industrial
wood operations.
The surplus Jewett-Cameron Seed property of 11.6
acres of land and 109,500 square feet of buildings remains listed for sale. The land is currently zoned with a rural industrial classification
but is well situated on a corner lot at a major interchange immediately adjacent to US Highway 26 in Hillsboro, Oregon, which is one
of the region’s busiest roadways. We explored the potential rezoning of the property to other higher value permitted uses, including
the inclusion within any expanded Urban Growth Boundaries (UGB). The current sluggish economic conditions within both the nearby cities
and in greater Portland has reduced the previously perceived need among the nearby cities to quickly expand the UGB, including extending
the boundary toward the area containing JCSC property. Therefore, any inclusion of the property in expanded UGBs or reclassification
of the property from its limited rural industrial classification now appears unlikely in the short-term among the prevailing economic
and political environment in the surrounding area. We have relisted the property at a price of $7.223 million. We have also recently
listed for sale our innovation lab property which is now surplus to our current needs, as we have moved the operations formerly housed
in the building to our nearby headquarters and warehouse in North Plains. This property contains a renovated building of 2,000 square