UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549


FORM 10-Q


(MARK ONE)


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2022

x

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2021



¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________


COMMISSION FILE NUMBER 000-19954


JEWETT-CAMERON TRADING COMPANY LTD.

(Exact Name of Registrant as Specified in its Charter)


british columbia A1NONE 00-0000000

BRITISH COLUMBIA

NONE

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)


32275 N.W. Hillcrest, North Plains, Oregon

97133

(Address Of Principal Executive Offices)

(Zip Code)


(503)647-0110

(503) 647-0110

(Registrant’s Telephone Number, Including Area Code)


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


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. x Yes¨  No


Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer


Large accelerated filer  ¨

Accelerated filer  ¨

Non-accelerated filer¨

Smaller Reporting Company  x

Emerging growth company    x


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. x


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ¨No x


APPLICABLE ONLY TO CORPORATE ISSUERS:


Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value – 3,489,1613,492,842 common shares as of July 14, 2021.2022.




Jewett-Cameron Trading Company Ltd.


Index to Form 10-Q


PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

3

1

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

28

25

Item 4.

Controls and Procedures

29

26

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

29

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

29

27

Item 3.

Defaults Upon Senior Securities

29

27

Item 4.

Mine Safety Disclosures

29

27

Item 5.

Other Information

30

27

Item 6.

Exhibits

30

27



- 2 -




PART 1 – FINANCIAL INFORMATION


Item 1.Financial Statements

Financial Statements




JEWETT-CAMERON TRADING COMPANY LTD.



CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited – Prepared by Management)



MAY 31, 20212022



- 3 -


JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


        

May 31,

2021

 

August 31,

2020

 

May 31,

2022

 

August 31,

2021

 

 

 

 

 

 

     

ASSETS

 

 

 

 

 

        

 

 

 

 

 

Current assets

 

 

 

 

 

        

Cash and cash equivalents

$

2,170,046

 

$

3,801,037

 $2,130,450  $1,184,313 

Accounts receivable, net of allowance

of $Nil (August 31, 2020 - $Nil)

 


11,051,061

 

 


6,274,426

Inventory, net of allowance

of $250,000 (August 31, 2020 - $65,000) (note 3)

 


7,767,640

 

 


9,198,146

Accounts receivable, net of allowance of $Nil 0 (August 31, 2021 - $0)  8,271,856   7,086,503 
Inventory, net of allowance of $250,000 (August 31, 2021 - $250,000) (note 3)  19,898,803   14,391,365 

Prepaid expenses

 

2,580,856

 

 

1,036,128

  2,257,576   2,305,820 
Prepaid income taxes  3,876   252,958 

 

 

 

 

 

        

Total current assets

 

23,569,603

 

 

20,309,737

  32,562,561   25,220,959 

 

 

 

 

 

        

Property, plant and equipment, net (note 4)

 

3,799,402

 

 

2,967,565

  4,661,706   3,886,543 

 

 

 

 

 

        

Intangible assets, net (note 5)

 

12,910

 

 

659

  30,092   30,897 

 

 

 

 

 

        

Total assets

$

27,381,915

 

$

23,277,961

 $37,254,359  $29,138,399 

 

 

 

 

 

        
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable $1,794,717  $1,349,677 
Bank indebtedness (note 7)  9,000,000   3,000,000 
Accrued liabilities  2,045,281   1,798,088 
        
Total current liabilities  12,839,998   6,147,765 
        
Deferred tax liability (note 6)  128,497   116,945 
        
Total liabilities  12,968,495   6,264,710 
        
Stockholders’ equity        
Capital stock (note 9, 10)        
Authorized        
21,567,564 common shares, 0 par value        
10,000,000 preferred shares, 0 par value        
Issued        
3,492,842 common shares (August 31, 2021 –3,489,161)  824,039   823,171 
Additional paid-in capital  725,729   687,211 
Retained earnings  22,736,096   21,363,307 
        
Total stockholders’ equity  24,285,864   22,873,689 
        
Total liabilities and stockholders’ equity $37,254,359  $29,138,399 

- Continued -


The accompanying notes are an integral part of these consolidated financial statements.


- 4 -


JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


 

May 31,

2021

 

August 31,

2020

 

 

 

 

 

 

Continued

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

  Accounts payable

$

1,557,721

 

$

1,095,061

  Bank indebtedness (note 7)

 

996,010

 

 

-

  Current portion of notes payable (note 8)

 

-

 

 

342,326

  Income taxes payable

 

230,190

 

 

40,596

  Accrued liabilities

 

2,290,235

 

 

2,016,300

 

 

 

 

 

 

  Total current liabilities

 

5,074,156

 

 

3,494,283

 

 

 

 

 

 

Long-term liabilities

 

 

 

 

 

Notes payable (note 8)

 

-

 

 

338,381

 

 

 

 

 

 

Deferred tax liability (note 6)

 

39,184

 

 

96,952

 

 

 

 

 

 

Total liabilities

 

5,113,340

 

 

3,929,616

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

  Capital stock (note 9, 10)

 

 

 

 

 

    Authorized

 

 

 

 

 

      21,567,564 common shares, without par value

 

 

 

 

 

      10,000,000 preferred shares, without par value

 

 

 

 

 

    Issued

 

 

 

 

 

      3,489,161 common shares (August 31, 2020 – 3,481,162)

 

823,171

 

 

821,284

  Additional paid-in capital

 

687,211

 

 

618,707

  Retained earnings

 

20,758,193

 

 

17,908,354

  

 

 

 

 

 

  Total stockholders’ equity

 

22,268,575

 

 

19,348,345

  

 

 

 

 

 

  Total liabilities and stockholders’ equity

$

27,381,915

 

$

23,277,961

  

 

 

 

 

 

Contingency (Note 17)

Subsequent Events (Note 18)


The accompanying notes are an integral part of these consolidated financial statements.


- 5 -


JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


 

Three Month

Period Ended

May 31,

 

Nine Month

Period Ended

 May 31,

 

2021

2020

 

2021

2020

 

 

 

 

 

 

 

 

 

 

SALES

$

21,619,952

$

16,241,239

 

$

42,396,591

$

30,918,345

 

 

 

 

 

 

 

 

 

 

COST OF SALES

 

16,037,702

 

11,931,746

 

 

31,239,866

 

22,555,253

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

5,582,250

 

4,309,493

 

 

11,156,725

 

8,363,092

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

  Selling, general and administrative expenses

 

966,299

 

706,079

 

 

2,556,902

 

2,118,999

  Depreciation and amortization

 

69,353

 

54,781

 

 

175,171

 

160,992

  Wages and employee benefits

 

1,908,588

 

1,635,051

 

 

5,226,021

 

4,343,412

 

 

 

 

 

 

 

 

 

 

 

 

2,944,240

 

2,395,911

 

 

7,958,094

 

6,623,403

 

 

 

 

 

 

 

 

 

 

Income from operations

 

2,638,010

 

1,913,582

 

 

3,198,631

 

1,739,689

 

 

 

 

 

 

 

 

 

 

OTHER ITEMS

 

 

 

 

 

 

 

 

 

  Gain on sale of property, plant and   

       equipment

 


-

 


2,200

 

 


-

 


2,600

   Gain on extinguishment of debt

 

687,387

 

 

 

 

687,387

 

 

   Interest and other income

 

(6,282)

 

3,217

 

 

(283)

 

21,414

 

 

681,105

 

5,417

 

 

687,104

 

24,014

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

3,319,115

 

1,918,999

 

 

3,885,735

 

1,763,703

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(904,638)

 

(522,026)

 

 

(1,035,896)

 

(547,614)

 

 

 

 

 

 

 

 

 

 

Net income

$

2,414,477

$

1,396,973

 

$

2,849,839

$

1,216,089

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.69

$

0.40

 

$

0.82

$

0.33

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

0.69

$

0.40

 

$

0.82

$

0.33

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

  Basic

 

3,489,161

 

3,481,162

 

 

3,485,525

 

3,672,858

  Diluted

 

3,489,161

 

3,481,162

 

 

3,485,525

 

3,672,858

 

 

 

 

 

 

 

 

 

 


                 
  

Three Month

Period Ended

May 31,

  

Nine Month

Period Ended

May 31,

 
  2022  2021  2022  2021 
             
SALES $20,922,190  $21,619,952  $47,900,665  $42,396,591 
                 
COST OF SALES  15,569,380   16,037,702   36,658,766   31,239,866 
                 
GROSS PROFIT  5,352,810   5,582,250   11,241,899   11,156,725 
                 
OPERATING EXPENSES                
Selling, general and administrative expenses  1,125,692   966,298   2,798,094   2,556,902 
Depreciation and amortization  83,291   69,353   237,001   175,171 
Wages and employee benefits  2,124,183   1,908,588   5,957,601   5,226,021 
                 
Total Operating Expenses  3,333,166   2,944,239   8,992,696   7,958,094 
                 
Income from operations  2,019,644   2,638,011   2,249,203   3,198,631 
                 
OTHER ITEMS                
Other income  903   3,000   (294,097)  9,000 
Interest expense  (47,972)  (9,283)  (98,868)  (9,283)
Gain on extinguishment of debt     687,387      687,387 
Total other items  (47,069)  681,104   (392,965)  687,104 
                 
Income before income taxes  1,972,575   3,319,115   1,856,238   3,885,735 
                 
Income tax expense  (478,464)  (904,638)  (483,449)  (1,035,896)
                 
Net income $1,494,111  $2,414,477  $1,372,789  $2,849,839 
                 
Basic earnings per common share $0.43  $0.69  $0.39  $0.82 
                 
Diluted earnings per common share $0.43  $0.69  $0.39  $0.82 
                 
Weighted average number of common shares outstanding:                
Basic  3,492,842   3,489,161   3,492,266   3,485,525 
Diluted  3,492,842   3,489,161   3,492,266   3,485,525 

The accompanying notes are an integral part of these consolidated financial statements.


- 6 -


JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


 

Capital Stock

 

 

 






Number of  Shares




Amount


Additional paid-in capital



Retained earnings




Total

August 31, 2019

3,971,282

$   936,903

$  618,707

$  18,875,256

$  20,430,866

 

 

 

 

 

 

    Shares repurchased and cancelled (note 10)

(490,120)

(115,619)

-

(3,751,427)

(3,867,046)

    Net income

-

-

-

1,216,089

1,216,089

 

 

 

 

 

 

May 31, 2020

3,481,162

$   821,284

$  618,707

$  16,339,918

$  17,779,909

 

 

 

 

 

 

    Net income

-

-

-

1,568,436

1,568,436

 

 

 

 

 

 

August 31, 2020

3,481,162

$  821,284

$  618,707

$  17,908,354

$  19,348,345

 

 

 

 

 

 

    Shares issued pursuant to compensation plans  

    (note 11)


7,999


1,887


68,504


-


70,391

    Net income

-

-

-

2,849,839

2,849,839

 

 

 

 

 

 

May 31, 2021

3,489,161

$  823,171

$  687,211

$  20,758,193

$  22,268,575

                     
  Capital Stock          
  Number of  
Shares
  Amount  Additional
paid-in
capital
  Retained
earnings
  Total 
Balance at August 31, 2020  3,481,162  $821,284  $618,707  $17,908,354  $19,348,345 
                     
Shares issued pursuant to compensation plans (note 10)  7,999   1,887   68,504      70,391 
Net income           2,849,839   2,849,839 
                     
Balance at May 31, 2021  3,489,161  $823,171  $687,211  $20,758,193  $22,268,575 
                     
Net income           605,114   605,114 
                     
Balance at August 31, 2021  3,489,161  $823,171  $687,211  $21,363,307  $22,873,689 
                     
Shares issued pursuant to compensation plans (note 10)  3,681   868   38,518      39,386 
Net income           1,372,789   1,372,789 
                     
Balance at May 31, 2022  3,492,842  $824,039  $725,729  $22,736,096  $24,285,864 


The accompanying notes are an integral part of these consolidated financial statements.


- 7 -


JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)


        

Nine Month

Period Ended

May 31,

 

Nine Month

Period Ended

May 31,

 

2021

 

 

2020

 2022  2021 

 

 

 

 

 

     

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

        

Net income

$

2,849,839

 

$

1,216,089

 $1,372,789  $2,849,839 

Items not involving an outlay of cash:

 

 

 

 

 

        

Depreciation and amortization

 

175,171

 

 

160,992

  237,001   175,171 

Stock-based compensation expense

 

70,391

 

 

-

  39,386   70,391 

(Gain) on sale of property, plant and equipment

 

-

 

 

(2,600)

Gain on extinguishment of debt

 

(680,707)

 

 

-

     (680,707)

Deferred income tax expense

 

(57,768)

 

 

39,571

  11,552   (57,768)

 

 

 

 

 

        

Changes in non-cash working capital items:

 

 

 

 

 

        

(Increase) in accounts receivable

 

(4,776,635)

 

 

(4,044,507)

  (1,185,353)  (4,776,635)

Decrease (increase) in inventory

 

1,430,506

 

 

(408,282)

(Increase) in notes receivable

 

-

 

 

(561,813)

(Increase) in prepaid expenses

 

(1,544,728)

 

 

(942,541)

(Increase) decrease in inventory  (5,507,438)  1,430,506 
Decrease (increase) in prepaid expenses  48,244   (1,544,728)

Decrease in prepaid income taxes

 

-

 

 

101,686

  249,082    

Increase in accounts payable and accrued liabilities

 

736,595

 

 

1,448,292

  692,233   736,595 

Increase in income taxes payable

 

189,594

 

 

-

     189,594 

 

 

 

 

 

        

Net cash (used in) provided by operating activities

 

(1,607,742)

 

 

(2,993,113)

  (4,042,504)  (1,607,742)

 

 

 

 

 

        

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

        

Purchase of property, plant and equipment

 

(1,019,259)

 

 

(207,469)

  (1,011,359)  (1,019,259)

Proceeds from sale of property, plant and

equipment

 


-

 

 


3,900

 

 

 

 

 

        

Net cash provided by (used in) investing activities

 

(1,019,259)

 

 

(203,569)

  (1,011,359)  (1,019,259)

 

 

 

 

 

        

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

        

Proceeds from bank indebtedness

 

996,010

 

 

-

  6,000,000   996,010 

Increase in notes payable

 

-

 

 

680,707

Redemption of common stock

 

-

 

 

(3,867,046)

 

 

 

 

 

        

Net cash provided by (used in) financing activities

 

996,010

 

 

(3,186,339)

  6,000,000   996,010 

 

 

 

 

 

        

Net (decrease) in cash

 

(1,630,991)

 

 

(6,383,021)

Net increase (decrease) in cash  946,137   (1,630,991)

 

 

 

 

 

        

Cash, beginning of period

 

3,801,037

 

 

9,652,310

  1,184,313   3,801,037 

 

 

 

 

 

        

Cash, end of period

$

2,170,046

 

$

3,269,289

 $2,130,450  $2,170,046 


Supplemental disclosure with respect to cash flows (Note 16)14)


The accompanying notes are an integral part of these consolidated financial statements.


- 8 -


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 20212022

(Unaudited)


1.

1.NATURE OF OPERATIONS

NATURE OF OPERATIONS


Jewett-Cameron Trading Company Ltd. was incorporated in British Columbia on July 8, 1987 as a holding company for Jewett-Cameron Lumber Corporation (“JCLC”), incorporated September 1953. 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 reorganized certain of its subsidiaries. JCLC’s name was changed to JC USA Inc. (“JC USA”), and a new subsidiary, Jewett-Cameron Company (“JCC”), was incorporated.


JC USA has the following wholly owned subsidiaries incorporated under the laws of the State of Oregon: Jewett-Cameron Seed Company, (“JCSC”), incorporated October 2000, Greenwood Products, Inc. (“Greenwood”), incorporated February 2002, and Jewett-Cameron Company, incorporated September 2013. Former wholly owned subsidiary MSI-PRO was wound-up and dissolved in fiscal 2020. Jewett-Cameron Trading Company Ltd. and its subsidiaries (the “Company”) have no significant assets in Canada.


The Company, through its subsidiaries, operates out of facilities located in North Plains, Oregon. JCC’s business consists of the manufacturing and distribution of specialty metalpet, fencing and other products, and wholesale distribution of wood products to home centers, and other retailers, on-line as well as direct to end consumers located primarily in the United States. Greenwood is a processor and distributor of industrial wood and other specialty building products principally to customers in the marine and transportation industries in the United States. JCSC is a processor and distributor of agricultural seeds in the United States. MSI was an importer and distributor of pneumatic air tools and industrial clamps in the United States. JCSC is a processor and distributor of agricultural seeds in the United States. JC USA provides professional and administrative services, including accounting and credit services, to its subsidiary companies.


In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. Government measures to limit the spread of COVID-19, including the closure of non-essential businesses, affected the Company’s operations including delays in inventory production and shipping, a change of product mix based on customer demand to fencing, pet and DIY products, an increase in demand from online sales channels, and costs associated with compliance with COVID-19COVID control protocols. The Company’s operations, including inventory production and sales, have been excluded from business restrictions within the jurisdictions that the Company operates. However, due to the rapid developmentscontinued transmission and uncertainty surrounding COVID-19,COVID, it is not possible to predict the impact that COVID-19 willCOVID may have on the Company’s business, financial position, and operating results in the future. In addition, it is possible that estimates in the Company’s consolidated financial statements will change in the near term as a result of COVID-19COVID and the effect of any such changes could be material, which could result in, among other things valuation of inventory and collectability of accounts receivable. The Company continues to closely monitor the impact of the pandemic on all aspects of its business.


2.SIGNIFICANT ACCOUNTING POLICIES

2.

SIGNIFICANT ACCOUNTING POLICIES


Generally accepted accounting principles


These consolidated financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America.


Principles of consolidation


These consolidated financial statements include the accounts of the Company and its current wholly owned subsidiaries, JC USA, JCC, MSI, JCSC, and Greenwood, and its former wholly owned subsidiary MSI, all of which are incorporated under the laws of Oregon, U.S.A.


All inter-company balances and transactions have been eliminated upon consolidation.


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)


2.

- 9 -

��

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


2.

SIGNIFICANT ACCOUNTING POLICIES Estimates(cont’d…)


Estimates


The preparation of consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates incorporated into the Company’s consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated allowances for doubtful accounts receivable and inventory obsolescence, possible product liability and possible product returns, and litigation contingencies and claims. Actual results could differ from those estimates.


Cash and cash equivalents


The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. At May 31, 2021,2022, cash and cash equivalents were $2,170,046$2,130,450 compared to $3,801,037$1,184,313 at August 31, 2020.2021.


Accounts receivable


Trade and other accounts receivable are reported at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable primarily includes trade receivables from customers. The Company estimates doubtful accounts on an item-by-item basis and includes over aged accounts as part of allowance for doubtful accounts, which are generally ones that are ninety days or greater overdue.


The Company extends credit to domestic customers and offers discounts for early payment. When extension of credit is not advisable, the Company relies on either prepayment or a letter of credit.


Inventory


Inventory, which consists primarily of finished goods, is recorded at the lower of cost, based on the average cost method, and market. Market is defined as net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a review of inventory components.


Property, plant and equipment


Property, plant and equipment are recorded at cost less accumulated depreciation. The Company provides for depreciation over the estimated life of each asset on a straight-line basis over the following periods:


Schedule of property plant and equipment useful life

Office equipment

3-73-7 years

Warehouse equipment

2-102-10 years

Buildings

Buildings

5-305-30 years


Intangibles


The Company’s intangible assets have a finite life and are recorded at cost. Amortization is calculated using the straight-line method over the remaining life of the asset. The intangible assets are reviewed annually for impairment.


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

2.

- 10 -

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


2.

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


Asset retirement obligations


The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and normal use of the long-lived assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost). The Company does not have any significant asset retirement obligations.


Impairment of long-lived assets and long-lived assets to be disposed of


Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount and the fair value less costs to sell.


Currency and foreign exchange


These financial statements are expressed in U.S. dollars as the Company's operations are primarily based in the United States.


The Company does not have non-monetary or monetary assets and liabilities that are in a currency other than the U.S. dollar. Any statement of operations transactions in a foreign currency are translated at rates that approximate those in effect at the time of translation. Gains and losses from translation of foreign currency transactions into U.S. dollars are included in current results of operations.


Earnings per share


Basic earnings per common share is computed by dividing net income or loss available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per common share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares.


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

2.

- 11 -

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


2.

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


Earnings per share (cont’d…)


The (loss) earnings per share data for the three and nine month periods ended May 31, 20212022 and 20202021 are as follows:


 

 

Three Month Periods

ended May 31,

 

Nine Month Periods

ended May 31,

 

 

 

 

 

 

 

 

 

 

 

2021

 

2020

 

2021

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

2,414,477

 

$

1,396,973

 

$

2,849,839

 

$

1,216,089

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of

       common shares outstanding

 


3,489,161

 

 


3,481,162

 

 


3,485,525

 

 


3,672,858

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

-

 

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average number

      of common shares outstanding

 


3,489,161

 

 


3,481,162

 

 


3,485,525

 

 


3,672,858

 Schedule of Earnings Per Share, Basic and Diluted                
  

Three Month Periods

ended May 31,

  

Nine Month Periods

ended May 31,

 
  2022  2021  2022  2021 
             
Net income $1,494,111  $2,414,477  $1,372,789  $2,849,839 
                 
Basic weighted average number of common shares outstanding  3,492,842   3,489,161   3,492,266   3,485,525 
                 
Effect of dilutive securities                
Stock options            
                 
Diluted weighted average number of common shares outstanding $3,492,842  $3,489,161  $3,492,266  $3,485,525 


The Company has no items of other comprehensive income in any periodyear presented. Therefore, net income presented in the consolidated statements of operations equals comprehensive income.


Stock-based compensation


All stock-based compensation is recognized as an expense in the financial statements and such costs are measured at the fair value of the award.


Financial instruments


The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments for which it is practicable to estimate such values:


Cash - the carrying amount approximates fair value because the amounts consist of cash held at a bank and cash held in short term investment accounts.


Accounts receivable - the carrying amounts approximate fair value due to the short-term nature and historical collectability.


Accounts payable and accrued liabilities - the carrying amount approximates fair value due to the short-term nature of the obligations.


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

2.

- 12 -

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


2.

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


Financial instruments (cont’d…)


The estimated fair values of the Company's financial instruments as of May 31, 20212022 and August 31, 20202021 follows:


 

 

May 31,

2021

 

August 31,

2020

 

 

Carrying

Fair

 

Carrying

Fair

 

 

Amount

Value

 

Amount

Value

 

Cash and cash equivalents

$ 2,170,046

$ 2,170,046

 

$ 3,801,037

$ 3,801,037

 

Accounts receivable, net of allowance

11,051,061

11,051,061

 

6,274,426

6,274,426

 

Notes Payable

-

-

 

680,707

680,707

 

Accounts payable and accrued liabilities

3,847,956

3,847,956

 

3,111,361

3,111,361

Fair Value, Option, Quantitative Disclosures                
  

May 31,

2022

  

August 31,

2021

 
  Carrying  Fair  Carrying  Fair 
  Amount  Value  Amount  Value 
Cash and cash equivalents $2,130,450  $2,130,450  $1,184,313  $1,184,313 
Accounts receivable, net of allowance  8,271,856   8,271,856   7,086,503   7,086,503 
Accounts payable and accrued liabilities  3,839,998   3,839,998   3,147,765   3,147,765 
Bank Indebtedness  9,000,000   9,000,000   3,000,000   3,000,000 


The following table presents information about the assets that are measured at fair value on a recurring basis as of May 31, 20212022 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:

 

 

 

 

May 31,

2021

 

Quoted Prices
in Active
Markets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,170,046

 

$

2,170,046

 

$

 

$

Fair Value, Assets Measured on Recurring Basis                
  

May 31,

2022

  Quoted Prices
in Active
Markets
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 
Assets:                
Cash and cash equivalents $2,130,450  $2,130,450  $  $ 


The fair values of cash are determined through market, observable and corroborated sources.


Income taxes


A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.


Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.


Shipping and handling costs


The Company incurs certain expenses related to preparing, packaging and shipping its products to its customers, mainly third-party transportation fees. All costs related to these activities are included as a component of cost of sales in the consolidated statements of operations. All costs billed to the customer are included as sales in the consolidated statements of operations.


10 

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

2.

- 13 -

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


2.

SIGNIFICANT ACCOUNTING POLICIES (cont’d…)


Revenue recognition


The Company recognizes revenue from the sales of lumber, building supply products, industrial wood products, specialty metal products, and other specialty products, and tools, when the products are shipped, title passes, and the ultimate collection is reasonably assured. Revenue from the Company's seed operations is generated from seed processing, handling and storage services provided to seed growers, and by the sales of seed products. Revenue from the provision of these services and products is recognized when the services have been performed, products sold and collection of the amounts is reasonably assured.


Recent Accounting Pronouncements


In February 2016, Topic 842, Leases was issued to replace the leases requirements in Topic 840, Leases.  The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.  The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.  Topic 842 will be effective for annual reporting periods beginning after December 15, 2018, including interim periods within those annual periods and is to be retrospectively applied.  Earlier application is permitted. The Company adopted this ASU on September 1, 2019. There was no material impact on the Company’s financial statements on adoption.


In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-14 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company is currently evaluatingadopted this ASU on September 1, 2020. There was no material impact on the impact of ASU No. 2016-13Company’s financial statements on its financial position, results of operations and liquidity.adoption.


3.INVENTORY

3.

INVENTORY


A summary of inventory is as follows:


 

 

May 31,

2021

 

August 31,

2020

 

 

 

 

 

 

 

 

Wood products and metal products

$

7,446,038

 

$

9,017,349

 

Agricultural seed products

 

321,602

 

 

180,797

 

 

 

 

 

 

 

 

 

$

7,767,640

 

$

9,198,146

Schedule of Inventory, Current        
  

May 31,

2022

  

August 31,

2021

 
       
Wood products and metal products $19,512,100  $14,257,609 
Agricultural seed products  386,703   133,756 
         
Inventory Net $19,898,803  $14,391,365 


11 

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

4.

- 14 -

PROPERTY, PLANT AND EQUIPMENT


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


4.

PROPERTY, PLANT AND EQUIPMENT


A summary of property, plant, and equipment is as follows:


 

 

May 31,

2021

 

August 31,

2020

 

 

 

 

 

 

 

 

Office equipment

$

535,614

 

$

654,739

 

Warehouse equipment

 

1,345,149

 

 

1,293,331

 

Buildings

 

5,012,285

 

 

4,182,332

 

Land

 

559,065

 

 

559,065

 

 

 

7,452,113

 

 

6,689,467

 

 

 

 

 

 

 

 

Accumulated depreciation

 

(3,652,711)

 

 

(3,721,902)

 

 

 

 

 

 

 

 

Net book value

$

3,799,402

 

$

2,967,565

Schedule of property, plant, and equipment        
  

May 31,

2022

  

August 31,

2021

 
       
Office equipment $635,818  $551,569 
Warehouse equipment  1,490,384   1,385,330 
Buildings  5,934,185   5,112,129 
Land  559,065   559,065 
Property, Plant and Equipment, Gross  8,619,452   7,608,093 
         
Accumulated depreciation  (3,957,746)  (3,721,550)
         
Net book value $4,661,706  $3,886,543 


In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future discounted cash flows is less than the carrying amount of the asset, an impairment loss will be recognized. Management's estimates of revenues, operating expenses, and operating capital are subject to certain risks and uncertainties which may affect the recoverability of the Company's investments in its assets. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur which could adversely affect management's estimate of the net cash flow expected to be generated from its operations.


5.INTANGIBLE ASSETS

5.

INTANGIBLE ASSETS


A summary of intangible assets is as follows:


 

 

May 31,

2021

 

August 31,

2020

 

 

 

 

 

 

 

 

Intangible assets

 

28,905

 

 

16,405

 

 

 

 

 

 

 

 

Accumulated amortization

 

(15,995)

 

 

(15,746)

 

 

 

 

 

 

 

 

Net book value

$

12,910

 

$

659

 Schedule of Finite-Lived Intangible Assets        
  

May 31,

2022

  

August 31

2021

 
       
Intangible assets  47,160   47,160 
         
Accumulated amortization  (17,068)  (16,263)
         
Net book value $30,092  $30,897 


6.

6.DEFERRED INCOME TAXES

DEFERRED INCOME TAXES


Deferred income tax liability as of May 31, 20212022 of $39,184$128,497 (August 31, 20202021 - $96,952)$116,945) reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.


7.BANK INDEBTEDNESS

7.

BANK INDEBTEDNESS


Bank indebtedness under the Company’s $3,000,000$10,000,000 line of credit as of May 31, 20212022 was $996,010$9,000,000 (August 31, 20202021 - $Nil)$3,000,000). The Line of Credit was increased during the current nine-month period from $5,000,000 to $10,000,000.


Bank indebtedness, when it exists, is secured by an assignment of accounts receivable and inventory. Interest iswas previously calculated solely on the one monthone-month LIBOR rate plus 175 basis points. AsBeginning with the monthly interest payment due March 31, 2022, the Company’s Bank Line of Credit agreement was revised to change the calculation of the interest rate from the one-month LIBOR rate to the one-month Secured Overnight Financing Rate (SOFR). Interest is now calculated based on the one-month SOFR plus 157 basis points, which as of May 31, 2021, the interest rate2022 was 1.875%2.36% (0.79% + 1.57%).


12 

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

8.

- 15 -

NOTES PAYABLE


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


8.

NOTES PAYABLE


On May 4, 2020, the Company entered into loan agreements with U.S. Bank (the “Lender”) for two unsecured loans represented by promissory notes (the “Notes”). The loans were made pursuant to the Paycheck Protection Program (the “PPP”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”).


The first loan was made to JCC for $487,127$487,127 and the second loan was made to JC USA for $193,580.$193,580. The total principal amount of the two notes is $680,707.$680,707. They have a term of 2 years with a 1%1% annual interest rate. Payments were originally deferred for 6 months, after which the repayment of principal and interest is required to be made in equal monthly payments over 18 months beginning December 4, 2020. However, the SBA subsequently revised the due date to either the date that SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. There is no prepayment penalty. If proceeds are used for qualifyingqualifying expenses as defined by the CARES Act, including payroll costs, health care benefits, rent and utilities, the Company can apply for forgiveness after 60 days of all or any portion of the promissory note used for such qualifying expenses.


The Company has chosen to account for the loans under FASB ASC 470. Repayment amounts due within 1 year have been recorded as current liabilities, and the remaining amounts due in more than 1 year as long-term liabilities. If the Company is successful in receiving forgiveness for those portions of the loan used for qualifying expenses, those amounts will be recorded as a gain upon extinguishment.


During the 3rd quarter of fiscal 2021 ended MayAugust 31, 2021, the Company’s applications for loan forgiveness of both loans was approved by the SBA. The Company has recorded a gain of extinguishment of debt of $687,387$687,387 consisting of $680,707$680,707 of principal and $6,680$6,680 of interest.


9.CAPITAL STOCK

9.

CAPITAL STOCK


Common Stock


Holders of common stock are entitled to one vote for each share held. There are no restrictions that limit the Company's ability to pay dividends on its common stock. The Company has not declared any dividends since incorporation.


10.

CANCELLATION OF CAPITAL STOCK


Treasury stock may be kept based on an acceptable inventory method such as the average cost basis.  Upon disposition or cancellation, the treasury stock account is credited for an amount equal to the number of shares cancelled, multiplied by the cost per share and the difference is treated as additional paid-in-capital in excess of stated value.


During the 2nd quarter of fiscal 2020 ended February 29, 2020, the Company repurchased for cancelation a total of 490,120 common shares from two large shareholders, including an officer and director of the Company. The shares were repurchased privately at a price of $7.89 per share, calculated as the Volume Weighted Average Price (VWAP) of all the shares traded on NASDAQ during the first quarter of fiscal 2020.  The total cost of the share repurchases was $3,867,046. The premium paid to acquire those shares over their per share book value in the amount of $3,751,427 was recorded as a decrease to retained earnings


10.

- 16 -

RESTRICTED SHARE PLAN


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


11.

SHARE-BASED INCENTIVE PLANS


Stock Options


The Company formerly had a stock option program under which stock options to purchase securities from the Company could be granted to directors and employees of the Company on terms and conditions acceptable to the regulatory authorities of Canada, notably the Ontario Securities Commission and the British Columbia Securities Commission.


Under the stock option program, stock options for up to 10% of the number of issued and outstanding common shares could be granted from time to time, provided that stock options in favor of any one individual may not exceed 5% of the issued and outstanding common shares.  No stock option granted under the stock option program is transferable by the optionee other than by will or the laws of descent and distribution, and each stock option is exercisable during the lifetime of the optionee only by such optionee.  Generally, no option can be for a term of more than 10 years from the date of the grant.


The exercise price of all stock options, granted under the stock option program, must be at least equal to the fair market value (subject to regulated discounts) of such common shares on the date of grant.  Options vested at the discretion of the Board of Directors.


During the year ended August 31, 2020, the Company’s Board of Directors approved the termination of the stock option program. The Company had no stock options outstanding as of May 31, 2021 and August 31, 2020.


Restricted Share Plan


The Company has a Restricted Share Plan (the “Plan”) as approved by shareholders on February 8, 2019. The Plan allows the Company to grant, from time to time, restricted shares as compensation to directors, officers, employees and consultants of the Company. The Restricted Shares are subject to restrictions, including the period under which the shares will be restricted (the “Restricted Period”) and subject to forfeiture which is determined by the Board at the time of the grant. The recipient of Restricted Shares is entitled to all of the rights of a shareholder, including the right to vote such shares and the right to receive any dividends, except that the shares granted under the Plan are nontransferable during the Restricted Period.


The maximum number of Common Shares reserved for issuance under the Plan will not exceed 1% of the then issued and outstanding number of Common Shares at the time of the grant. As of February 28, 2021,May 31, 2022, the maximum number of shares available to be issued under the Plan was 31,713.34,928.


During the second quarter of fiscal 2021 ended February 28, 2021, the Board of Directors set the compensation for members of the Board under the Plan. Non-executive directors will be granted 25 common shares for each quarter of service, with the cumulative amount of shares earned each fiscal year to be granted shortly after the close of that fiscal year. Non-executive Directors also received a one-time initial grant of 225 common shares which were issued in December 2020.


13 

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

During the nine months ended May 31, 2021, the Company issued 7,999 common shares to Officers, Directors and Employees under the RSA Plan. 6,564 of these shares were issued to Officers and Directors without a Restricted Period under the Company’s S-8 Registration Statement filed on December 7, 2020. The remaining 1,435 shares were issued to Employees and have a three-year Restricted Period.


11.

- 17 -

PENSION AND PROFIT-SHARING PLANS


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


12.

PENSION AND PROFIT-SHARING PLANS


The Company has a deferred compensation 401(k) plan for all employees with at least 6 months of service pending a monthly enrollment time. The plan allows for a non-elective discretionary contribution plus matching employee contributions up to a specific limit. The percentages of contribution remain the discretion of the Board and are reviewed with management annually. For the nine monthsnine-month periods ended May 31, 20212022 and 2020,2021, the 401(k) compensation expense was $393,218$426,436 and $330,208,$393,218, respectively.


12.SEGMENT INFORMATION

13.

DISCONTINUED OPERATIONS


Effective September 1, 2019, the Board of Directors decided to permanently close the MSI division and exit the industrial tools business. As of August 31, 2020, the remaining inventory has been liquidated, the division has been wound-up, and the subsidiary has been voluntarily dissolved. The operations and assets of MSI were significantly immaterial to the Company’s overall performance. As such, separate disclosure of MSI’s operations as discontinued operations within the Company’s statement of operations was not considered necessary.


14.

SEGMENT INFORMATION


The Company has fourthree principal reportable segments. Three segments are continuing operations and one, Industrial Tools and Clamps, is considered as a discontinued operation. These reportable segments were determined based on the nature of the products offered. Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.


The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The following tables show the operations of the Company's reportable segments.


The followingFollowing is a summary of segmented information for the nine monthnine-month periods ended May 31, 20212022 and 2020.2021.


 

 

2021

 

2020

 

 

 

 

 

 

 

 

Sales to unaffiliated customers:

 

 

 

 

 

 

Industrial wood products

$

1,883,064

 

$

1,955,669

 

Lawn, garden, pet and other

 

37,843,378

 

 

27,493,875

 

Seed processing and sales

 

2,670,149

 

 

1,230,765

 

Industrial tools and clamps

 

-

 

 

238,036

 

 

$

42,396,591

 

$

30,918,345

 

 

 

 

 

 

 

 

Income (loss) before income taxes:

 

 

 

 

 

 

Industrial wood products

$

(46,258)

 

$

(69,619)

 

Lawn, garden, pet and other

 

3,592,546

 

 

1,626,378

 

Seed processing and sales

 

94,339

 

 

(60,458)

 

Industrial tools and clamps

 

-

 

 

(238,195)

 

Corporate and administrative

 

245,108

 

 

505,597

 

 

$

3,885,735

 

$

1,763,703


Schedule of Segment Reporting Information        
  2022  2021 
       
Sales to unaffiliated customers:        
Industrial wood products $1,690,262  $1,883,064 
Lawn, garden, pet and other  43,978,959   37,843,378 
Seed processing and sales  2,231,444   2,670,149 
  $47,900,665  $42,396,591 
         
Income (loss) before income taxes:        
Industrial wood products $8,823  $(46,258)
Lawn, garden, pet and other  1,499,053   3,592,546 
Seed processing and sales  (238,387)  94,339 
Corporate and administrative  586,749   245,108 
  $1,856,238  $3,885,735 

14 

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

12.

- 18 -

SEGMENT INFORMATION (cont’d…)


  2022  2021 
       
Identifiable assets:        
Industrial wood products $669,301  $701,021 
Lawn, garden, pet and other  28,754,441   19,205,736 
Seed processing and sales  474,038   793,392 
Corporate and administrative  7,356,579   6,681,766 
  $37,254,359  $27,381,915 
         
Depreciation and amortization:        
Industrial wood products $  $ 
Lawn, garden, pet and other  29,385   29,335 
Seed processing and sales  4,761   4,761 
Corporate and administrative  202,855   141,075 
  $237,001  $175,171 
         
Capital expenditures:        
Industrial wood products $  $ 
Lawn, garden, pet and other      
Seed processing and sales      
Corporate and administrative  1,011,359   942,188 
  $1,011,359  $942,188 
         
Interest expense: $98,868  $ 

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


14.

SEGMENT INFORMATION (cont’d…)


 

 

2021

 

2020

 

 

 

 

 

 

 

 

Identifiable assets:

 

 

 

 

 

 

Industrial wood products

$

701,021

 

$

780,726

 

Lawn, garden, pet and other

 

19,205,736

 

 

13,346,110

 

Seed processing and sales

 

793,392

 

 

547,496

 

Industrial tools and clamps

 

-

 

 

741

 

Corporate and administrative

 

6,681,766

 

 

7,057,217

 

 

$

27,381,915

 

$

21,732,290

 

 

 

 

 

 

 

 

Depreciation and amortization:

 

 

 

 

 

 

Industrial wood products

$

-

 

$

-

 

Lawn, garden, pet and other

 

29,335

 

 

20,777

 

Seed processing and sales

 

4,761

 

 

4,761

 

Industrial tools and clamps

 

-

 

 

2,241

 

Corporate and administrative

 

141,075

 

 

133,213

 

 

$

175,171

 

$

160,992

 

 

 

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

 

Industrial wood products

$

-

 

$

-

 

Lawn, garden, pet and other

 

-

 

 

-

 

Seed processing and sales

 

-

 

 

-

 

Industrial tools and clamps

 

-

 

 

-

 

Corporate and administrative

 

942,188

 

 

207,469

 

 

$

942,188

 

$

207,469

 

 

 

 

 

 

 

 

Interest expense:

$

-

 

$

-


The following table lists sales made by the Company to customers which were in excess of 10% of total sales for the nine monthsnine-months ended May 31, 20212022 and 2020:2021:


 

 

2021

 

2020

 

 

 

 

 

 

 

 

Sales

$

22,279,565

 

$

12,605,112

 Sales in excess of ten percent of total sales       
   2022  2021 
        
Sales  $25,309,216  $22,279,565 


The Company conducts business primarily in the United States, but also has limited amounts of sales in foreign countries. The following table lists sales by country for the nine monthsnine-months ended May 31, 20202022 and 2019:2021:


 

 

2021

 

2020

 

 

 

 

 

 

 

 

United States

$

40,698,374

 

$

30,184,205

 

Canada

 

1,197,681

 

 

535,049

 

Mexico / Latin America / Caribbean

 

181,168

 

 

159,926

 

Europe

 

171,254

 

 

6,867

 

Asia/Pacific

 

148,114

 

 

32,298

Schedule of sales by country        
  2022  2021 
       
United States $45,945,594  $40,698,374 
Canada  879,929   1,197,681 
Mexico / Latin America / Caribbean  766,147   181,168 
Europe  76,247   171,254 
Asia/Pacific  232,748   148,114 


All of the Company’s significant identifiable assets were located in the United States as of May 31, 20212022 and 2020.2021.


15 

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2022

(Unaudited)

13.

- 19 -

RISKS


JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

May 31, 2021

(Unaudited)


15.

RISKS


Credit risk


Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company places its cash with a high quality financial institution. The Company has concentrations of credit risk with respect to accounts receivable as large amounts of its accounts receivable are concentrated geographically in the United States amongst a small number of customers.


At May 31, 2022, two customers accounted for accounts receivable greater than 10% of total accounts receivable at 54%. At May 31, 2021, two customers accounted for accounts receivable greater than 10% of total accounts receivable at 59%. At May 31, 2020, two customers accounted for accounts receivable greater than 10% of total accounts receivable at 56%. The Company controls credit risk through credit approvals, credit limits, credit insurance and monitoring procedures. The Company performs credit evaluations of its commercial customers but generally does not require collateral to support accounts receivable.


Volume of business


The Company has concentrations in the volume of purchases it conducts with its suppliers. For the nine months ended May 31, 2022, there were three suppliers that each accounted for 10% or greater of total purchases, and the aggregate purchases amounted to $21,313,695. For the nine months ended May 31, 2021, there were three suppliers that each accounted for 10% or greater of total purchases, and the aggregate purchases amounted to $14,782,935. For the nine months ended May 31, 2020, there were two suppliers that each accounted for 10% or greater of total purchases, and the aggregate purchases amounted to $13,119,225.$14,782,935.


14.SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

16.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS


Certain cash payments for the nine months ended May 31, 20212022 and 20202021 are summarized as follows:


 

 

2021

 

2020

 

 

 

 

 

 

 

 

Cash paid during the periods for:

 

 

 

 

 

 

  Interest

$

-

 

$

-

 

  Income taxes

$

338,746

 

$

342,897


Schedule of Cash Flow, Supplemental Disclosures        
  2022  2021 
       
Cash paid during the periods for:        
Interest $98,868  $ 
Income taxes $227,685  $338,746 

There were no non-cash investing or financing activities during the periods presented.


17.

CONTINGENCY


The Company is a named party in a Civil Action in Pennsylvania. The matter is an action seeking compensation for personal injuries and is based on theories of product liability as to Jewett-Cameron. The matter arises out of a dog allegedly escaping from a Jewett-Cameron kennel product and causing personal injuries to three individuals. Jewett-Cameron is currently one of three named Defendants.  A trial date has not been set at this time.  At the present time it is speculative to predict as to its outcome. It is the Company’s intention to vigorously defend the lawsuit. Jewett Cameron’s applicable liability insurer is providing a defense covering Jewett-Cameron’s legal fees and costs.


The Company has initiated arbitration against a former distributor asserting a breach of the distribution agreement and seeking damages. This distributor has raised a counter claim in Illinois federal court against the Company asserting a breach of the same contract and seeking damages. While 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 


18.

SUBSEQUENT EVENTS


Effective June 15, 2021, the Company’s Line of Credit was increased from $3,000,000 to $5,000,000.


15.CONTINGENCY

 

- 20 -

a)
An association of District Attorneys in the State of California contacted the Company in regards to their 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 is misleading due to the lack of industrial composting facilities that accept dog waste. The Company expects a final settlement will be filed in June 2022, and has accrued a charge in the current period of $300,000 towards the anticipated settlement.

 

b)The Company is a named party in a Civil Action in Pennsylvania. The matter is an action seeking compensation for personal injuries and is based on theories of product liability as to the Company. The matter arises out of a dog allegedly escaping from a Jewett-Cameron kennel product and causing personal injuries to three individuals. The Company is currently one of three named Defendants. A trial date has not been set at this time. At the present time it is speculative to predict as to its outcome. It is the Company’s intention to vigorously defend the lawsuit. The Company’s applicable liability insurer is providing a defense covering the Company’s legal fees and costs.

 

c)The Company has initiated arbitration against a former distributor asserting a breach of the distribution agreement and seeking damages. Arbitration is scheduled to commence during the 4th quarter of calendar 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.

 

16.SUBSEQUENT EVENTS

 

a)In June 2022, the Company repaid $1,000,000 borrowed under the Company’s Bank Line of Credit, which leaves a balance of $8,000,000 with $2,000,000 of the Line available.

 

b)

A final settlement with the association of District Attorneys in the State of over the environmental labeling and marketing of dog waste bags was reached in June 2022. The Company has agreed to pay the previously accrued $300,000 as a fine over a four-month period with no admission of guilt by the Company.

16 
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.


Item 2.  

Management’s Discussion and Analysis of Financial Condition and Results of Operations.


These unaudited financial statements are those of the Company and its wholly owned subsidiaries. In the opinion of management, the accompanying consolidated financial statements of Jewett-Cameron Trading Company Ltd., contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state its financial position as of May 31, 20212022 and August 31, 20202021 and its results of operations and cash flows for the three and nine month periods ended May 31, 20212022 and 20202021 in accordance with U.S. GAAP. Operating results for the three and nine month periodperiods ended May 31, 20212022 is not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2021.2022. Overall, the operating results of JCC are seasonal with the first two quarters of the fiscal year historically being slower than the final two quarters of the fiscal year.


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:

·


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 primarily to the transportation industry, including the municipal and mass transit transportation sectors.


The lawn, garden, pet and other segment reflects the business of Jewett-Cameron Company (JCC), which is a wholesaler of wood products and a manufacturer and distributor of specialty metal products. WoodJCC 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 are primarily fencing, while metal productsthat include an array of pet enclosures, kennels, and kennels,pet welfare and comfort products, proprietary gate support systems, perimeter fencing, greenhouses, canopies and umbrellas. fencing in-fill products made of wood, metal and composites. Examples of the Company’s brands include Lucky Dog®, Animal House® and AKC (used under license from the American Kennel Club) for pet enclosuresproducts; Adjust-A-Gate™, Fit-Right®, Perimeter Patrol®, and kennels; Adjust-A-Gate, Fit-Right™, LIFETIME POST™Infinity Euro Fence and Perimeter Patrol®Lifetime Post™ for gates and fencing; Early Start, Spring Gardener™Gardner™, Greenline®, and Weatherguard for greenhouses; and TrueShade® for patio umbrellas, furniture covers and canopies.greenhouses. JCC uses contract manufacturers to make the specialty metalmanufacture 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 andpartners, on-line direct consumers as well as other retailers.


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.


MSI is a former division of the Company that 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. This business operated from the same owned facilities as JCC.  The MSI division was permanently closed and all remaining inventory was liquidated during fiscal 2020.


JC USA Inc. (“JC USA”) is the parent company for the 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 products are 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.


- 21 -

17 


RESULTS OF OPERATIONS


The 3rd and 4th quarters of the fiscal year are historically the Company’s busiest season, and the strong sales momentum from the first two quarters continuedSales in the third quarter. This year’s third quarter sales were up 33% over the third quarter of fiscal 2020. However,2022 declined 3% from the same quarter of fiscal 2021, as sales duringat Greenwood fell by 11% and sales at JCS were down 40%. Even with the current quarter were restrained due to logistical issues, including extended shipping delays from China, a shortage of shipping containers, clogged port facilities, and a scarcity of trucking to ship and receive product.


Current demand for a number ofslight decline in Q3, our core products is the higheststrong sales growth in the Company’s history. Thefirst six months of fiscal 2022 resulted in a 13% increase in sales for the current nine-month period compared to the same period in fiscal 2021. Our margins continue to be constrained by inflationary pressures, particularly higher raw material and energy prices, and higher shipping rates, both internationally and within the US. Gross margin slipped to 23.5% for the current nine months from 26.3% in the year-ago period.

Inflation is showing no signs of abating in the short-term. Near-record energy prices are forcing logistical related costs upwards. Ocean container contracts recently reset with higher prices in May and availability of spot containers remains historically tight. COVID outbreaks and government mandated closures in China continue to occur, which have led to supply disruptions and higher costs. In response, we have been able to successfully raise our selling prices and pass through some of these higher costs to our customers. However, the still rising rate of inflation has resulted in many of our product’s selling prices continuing to lag product costs which will continue to restrain our margins in the near-term.

We have continued our efforts to mitigate these effects from inflation and supply chain disruptions as much as possible. Prior to the start of our fiscal 3rd quarter, which is the traditional start of our busy Spring and Summer season, we made a decision to build our inventory, particularly in our highest volume items. It allowed us to mitigate the risks of shipping and supply chain disruptions and ship products from China ahead of already announced price increases from both suppliers and shippers. This strategy was successful, as it reduced some of our product costs while ensuring high product availability and on-time fulfillment rates during our busy 3rd quarter. As we sell through our busy season, our on-site inventory position has declined from $10.5 million in February to $8.2 million in June.

Our inventory strategy did require higher cash outlays primarily funded through our bank line of credit, which we have begun repaying as inventory is sold and accounts receivable are collected. We have also signed new shipping contracts to lock in as much ocean container capacity at fixed rates, while also modifying our containerization of products to maximize the available space and minimize the increased costs. These supply chain issues and higher shipping costs, combined with tariff issues, have led management to investigate the broader sourcing of our raw materials and certain finished products.

Our current financial results were negatively affected by the accrual in the second quarter occurred within allof $300,000 for anticipated costs related to an offer to settle 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 have already settled their portion of the Company’s sales channels, including eCommerce,case. In June 2022, we agreed to settle for only the previously accrued $300,000 payment with many customers requesting both higher volumes and adding additional productsno admission of guilt by the Company. In response to their orders. These results demonstrate the success ofcase, we have redesigned our current salespackaging and marketing strategy. 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. In June, we placed a new order with our bag supplier to restock our inventory.

The rebrandingworldwide supply chain issues have slowed our planned introductions of ourseveral new products, has highlighted our brand names and increased consumer awareness of our consistent look and statement of value. Webut we remain committed to our overall strategy to expand new and existing sales channels, widen our product distribution, and grow our connections with the end consumer.


The expansion of our product lines through the introduction of complementary products is performing well, particularly with the compostable dog waste bag which has received extremely favorable consumer response. We are adding sales and customers as our production levels continue to ramp up. We see this initial compostable product as the foundation of a sustainable and innovative brand. We also intend to continue toeither develop or acquire new products, particularly those that complement and expand our existing product lines. Besides our internal new product development process, we mayWe also seek to acquire products that conform to this strategy.


We continue to investare strategically investing in the expansion of our facilities, equipment, and personnel. The Company’s new Enterprise Resource Planning (ERP) software system successfully went live in February 2021 and has been performing well. We have also launched the third of four planned phases to modernize our facilities and add capacity for future expansion. Renovationrenovation of an existing portion ofwarehouse building for both custom order fulfilment and to support our growing fence business is expected to be completed during the warehouse into a two-story office and gathering was completed and occupied in May 2021.  Other current capital projects include the renovation of the former seed laboratory into a new Creative Center for new product development which was completed in February 2021. We have also revamped our corporate4th fiscal quarter. The website has been upgraded in line with our omnichannel rebranding. These updates include a larger and unified product presentation, new eCommerce interface,commitment offering enhanced accessibility, functionality and modernized investor relations and contact sections. The Company has added additional personnel to lead the efforts for enhancing consumer awareness and marketing for both the website and on multiple social media platforms.


In May 2021, Chad Summers was appointed PresidentWe have also implemented easier navigation of the Company. Mr. Summers assumed the role from Charlie Hopewell who voluntarily decided to transition from President and his current CEO position to continue as Board Chair and Director effective January 1, 2022. Mr. Summers has been with Jewett-Cameron since October 2019. His prior experience includes a strong background in leadership, consulting, and support. He co-owned and led an international family lumber brokering business similar to Jewett-Cameron’s Greenwood division. This experience provided him the opportunity to oversee and actively manage suppliers in China and throughout SE Asia. He built a successful consulting practice dedicated to growing manufacturers in associationour increased product selection displayed with a west coast regional accounting firm which allowed him the opportunity to establishmore unified brand presentation within a deep network of manufacturers, professional services and support connections regionally. He also participated in and led start-up ventures in both product and service industries. Since joining the Company he has focused on driving growth through pursuing acquisition opportunities as well as key strategic partnerships.new eCommerce interface.


Subsequent to the end of the third fiscal quarter, the Company added Michelle Walker to the Board of Directors. Ms. Walker is a business strategist with experience in brand development, organizational alignment, and building consumer brands, including both B2B and B2C businesses. Previously, she was CEO of Sock It to Me, Inc., a sock and underwear brand she grew by 400% during her tenure. She has also held several senior positions with PepsiCo, including Senior Director and GM of the Lays and Ruffles brands where her responsibility included business strategy, brand positioning, product development, and sales strategy. Ms. Walker’s experience and guidance will be extremely important as the Company continues its growth strategy.


- 22 -


In response to the COVID-19 pandemic, the State of Oregon fully reopened andoriginally lifted all of its mask and social distancing requirements in June 2021. However, as a response to the surge in COVID-19 infections, indoor masking requirements for businesses were reinstituted in August 2021 and remained in effect until the State of Oregon lifted the indoor masking mandate on March 11, 2022. The Company will remainremains vigilant in regard to the COVID virusCoronavirus and its variants. It is critical to our continuing operations that we do all we can to protect and retain our workforce if and when they might experience exposure to the virus. If any employees working at headquarters or in the warehouse facilities contract the virus, the Company would be forced to curtail those operations, including product shipments, for the required period to thoroughly clean and sanitize the facility without human exposure, which would result in delayed or lost revenue, and increased costs. To date, we have not had any incidents of transmissions within the confines of our facilities due to our clear and consistent protocols during the restrictive period, as well as our employees’ remarkable support of our procedures which has been critical to our success in keeping our workplace safe and running. This has directly led to our ability to retain our workforce through these challenging times as well as create an environment in which people feel safe. The assistance of the PPP program provided us the ability to assist sound employee decisions when they either felt they had an external exposure or perhaps even tested positive due to such external exposure. The loans the Company received under the Paycheck Protection Program were essential in supporting the Company’s ability to operate without interruption during the crisis and retain 100% of its workforce. All of the borrowed funds were spent on qualifying employee payroll expenses, and the Company’s loans were fully forgiven by the SBA in April 2021.


18 

The Company’s business is typically seasonal, with sales volumes highest in the 3rd and 4th quarters of the fiscal year. The sales gains seen in the first half of the fiscal year are certainly encouraging. However, the ongoing COVID-19 situation both in the US and internationally continues to cloud the outlook for the remainder of fiscal 20212022 remains uncertain. Inflation, particularly in the form of higher raw material costs combined with higher shipping costs, is expected to remain an issue going forward. Although the consumer sectors of home improvement and pet supplies in which the Company operates are historically somewhat resistant to declines in consumer spending resulting from inflation compared to many other sectors, they are certainly not immune. The sudden increase in energy prices to near-record highs has 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. These costs may also increase faster than we are able raise our selling prices to our customers, which would continue to pressure our margins for the remainder of the fiscal year and into fiscal 2022. Both international and domestic supply chains and logistics remain chaotic. It has become more difficult to secure shipping containers and ship space for our Chinese manufactured goods. This has resulted in significant cost increases for container rentals in addition to shipping delays, as seaborne container slots are scarce and there are long delays for container ships to unload at certain American West Coast ports. We were able to mitigate these effects somewhat due to our building of higher than normal inventory levels of a number of our most popular products in the second quarter before the shipping crisis worsened. But, higher than expected customer orders resulted in some products being unavailable at times during the third quarter. There is also a shortage of trucks and trucking capacity in the United States, which is causing some delays in both receiving goods from suppliers and shipping product to customers. Although we prioritized the shipping of our most important products during the 3rd quarter, the combination of product delays and the continued high level of customer orders significantly inflated the Company’s backlog and accounts receivable as payment from customers extended later than usual. At the same time, we needed to order additional product to fulfil both current and future orders. This required the Company to access its line of credit during the third quarter. The situation is expected to be temporary and is beginning to alleviate during the 4th quarter as significant amounts of product are in transit and are now beginning to be delivered.2023.


Three Months Ended May 31, 20212022 and May 31, 20202021


For the three months ended May 31, 2021,2022, sales totaled $21,619,952$20,922,190 compared to sales of $16,241,239$21,619,952 for the three months ended May 31, 2020,2021, which was an increaseis a decrease of $5,378,713,$697,762, or 33%3%.


Sales at JCC for the current quarter were down 1% to $19,775,597 from sales of $20,020,420 for the three months ended May 31, 2021 compared to sales of $15,491,042 for the three months ended May 31, 2020. This represents an increase of $4,529,378, or 29%.2021. The higherhistoric volatility in lumber prices has dampened consumer demand, for fencing and some poop bag sales were delayed due to the switch to new product packaging required by the potential settlement in California over the previous packaging. We have also replaced some of our existing pet products experiencedproduct lines with newer models, which resulted in some slower sales in the quarter during the first six months of the fiscal year during the COVID-19 pandemic continued into the current quarter. There has also been strong market acceptance of the Company’s newly introduced products, including the compostable dog waste bags. Sales during the current period were somewhat restrainedtransition. Margins continue to be pressured by logistical issues, particularly during the final month of the quarter.higher raw material, energy and shipping costs. Operating profit for JCC in the current quarter was $3,104,805$2,068,910 compared to income of $1,909,079$3,104,805 for the quarter ended May 31, 2020.  The operating results of JCC are historically seasonal with the first two quarters of the fiscal year being slower than the final two quarters of the fiscal year.2021.


Sales at Greenwood for the quarter were $637,718$570,592 compared to sales of $485,678$637,718 for the three months ended May 31, 2020,2021, which was an increasea decrease of $152,040,$67,126, or 31%11%. Demand for Greenwood’s products from governments and transit operators remains weak due to the impacts of the COVID-19 pandemic as well as supply shortages customer production delays due to logistics.continued supply chain delivery issues. During the current quarter, a new trader was hired to help grow sales and introduce new products to new customers, including those in the housing and construction sectors. For the three months ended May 31, 2021,2022, Greenwood had an operating loss of ($9,794)35,123) compared to an operating loss of ($24,093)9,794) for the three months ended May 31, 2020.2021.


Sales at JCSC were $576,001 compared to sales of $961,814 for the three months ended May 31, 2021. This is a decrease of $385,813, or 40%. The historic heat wave across the Pacific Northwest during the summer of 2021 compared to sales of $264,520damaged many crops and reduced harvested yields which has decreased demand for the three months ended May 31, 2020. This is an increase of $697,294, or 264%. Management’s recent effortsCompany’s seed cleaning services. There has also been delays in shipping certain grass seed orders to more closely align with the needs of growers and focus on service has ledChina due to significantly greater cleaning volumes during the current period.their COVID related border shutdowns. For the quarter ended May 31, 2021,2022, JCSC had an operating loss of ($116,639) compared to operating income of $42,934 compared to an operating loss of ($103,639) infor the quarter ended May 31, 2020.2021.


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JC USA is the holding company for the wholly-owned operating subsidiaries. For the quarter ended May 31, 2021,2022, JC USA had operating income of $181,169$55,428 compared to operating income of $153,415$181,169 for the quarter ended May 31, 2020.2021. The increase in operating income is largely due to higher inventory levels in the current quarter. The results of JC USA are eliminated on consolidation


Gross margin for the three months ended May 31, 20212022 was 25.8%25.6% compared to 26.5%25.8% for the three months ended May 31, 2020. Margins in the current quarter were negatively impacted by logistic issues,2021. Significant inflationary inputs, particularly the higher cost of shippingcosts for raw materials, energy and shipping containers from China, trucking issues in the United States, and greater sales of lower margin lumber.logistics, continue to pressure our margins.


Operating expenses increased by $548,329$388,927 to $2,944,240$3,333,166 from $2,395,911$2,944,239 for the three months ended May 31, 2020.2021. Selling, General and Administrative rose to $966,299$1,125,692 from $706,079 which is commensurate with$966,298 as new marketing and sales programs were conducted for the higher level of sales in the current quarter.Company’s recently introduced products. Wages and Employee Benefits increased to $1,908,588$2,124,183 from $1,635,051$1,908,588 as the Company increased its employee headcount compared to the prior year’s quarter. Depreciation rose to $83,291 from $69,353 from $54,781.as the Company added new facilities and equipment. Other income includeswas $903, and interest expense related to the amounts borrowed on its bank line of credit were $47,973. In the comparable quarter of the prior year, the Company recorded a one-time gain onrelated to the extinguishmentforgiveness of its PPP debt of $687,387 which is the principal and accrued interest of the Company’s two SBA PPP loans which were forgiven during the current quarter. Interest and other income was an expense of ($6,282) compared to a gain of $3,217 in the year-ago quarter, as the Company incurred interest from the draw on its line of credit. There was no gain on Sale of Property, Plant and Equipment in the current period compared to $2,200 in the quarter ended May 31, 2020.$687,387.


Income tax expense for the three months ended May 31, 20212022 was $904,638$478,464 compared to $522,026$904,638 for the three monththree-month period ended May 31, 2020.2021. The Company estimates income tax expense for the quarter based on combined federal and state rates that are currently in effect, and the increase in taxes is consistent with the higher income for the current quarter.


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Net income of the quarter ended May 31, 2022 was $1,494,111, or $0.43 per basic and diluted share. Net income for the quarter ended May 31, 2021, including the one-time gain on the extinguishment of its PPP debt of $687,387, was $2,414,477, or $0.69 per basic and diluted share, compared to net income of $1,396,973, or $0.40 per basic and diluted share, for the quarter ended May 31, 2020.share.


Nine Months Ended May 31, 20212022 and May 31, 20202021


For the nine months ended May 31, 2021,2022, sales totaled $42,396,591$47,900,665 compared to sales of $30,918,345$42,396,591 for the nine months ended May 31, 2020.2021. This represents an increase of $11,478,246,$5,504,074, or 37%11%.


Sales at JCC were $43,978,959 for the nine months ended May 31, 2022 compared to sales of $37,843,379 for the nine months ended May 31, 2021, which was an increase of $6,135,580, or 16%. Consumer demand for fencing and pet products has remained high, and the Company also successfully raised its selling prices on many products in the current period. Operating income at JCC was $1,499,054 compared to salesincome of $27,493,875$3,592,546 for the nine months ended May 31, 2020, which was an increase of $10,349,504, or 38%. The increase2021 as higher costs, including for raw materials, energy and shipping, reduced our margins in sales is due to higher consumer demand for fencing and pet products during the COVID-19 pandemic as well as strong market acceptance of the Company’s newly introduced products, including the compostable dog waste bags. The prior year’s period was negatively affected by the initial stages of the COVID-19 pandemic which resulted in lower product demand from certain customers and some shipping delays from Chinese manufacturers. Operating income at JCC was $3,592,546 compared to income of $1,626,378 for the nine months ended May 31, 2020.current period. Overall, the operating results of JCC are seasonal with the first two quarters of the fiscal year being much slower than the final two quarters of the fiscal year.


Sales at Greenwood were $1,883,064$1,690,262 compared to sales of $1,955,669$1,883,064 for the nine months ended May 31, 2020.2021. This represents a decrease of $72,605,$192,802, or 4%10%. DemandGreenwood’s sales have been heavily impacted by COVID, as many of their products are sold to companies providing transportation vehicles to municipalities and larger transit operators. The overall demand for Greenwood’sequipment replacement by those municipalities is and remains significantly down from pre-COVID periods. Greenwood is working to diversify its product mix and customer base. During the third quarter, a new trader was hired and will work to introduce new products from governments and transit operators remains weak dueincrease sales efforts in some new sectors, particularly to potential customers in the COVID-19 pandemic.housing and construction sectors. For the nine months ended May 31, 2021,2022, Greenwood had an operating lossprofit of ($46,258)$8,823 compared to an operating loss of ($69,619)46,258) for the nine months ended May 31, 2020.2021.


Sales at JCSC for the nine months ended May 31, 20212022 were $2,670,149$2,231,444 compared to sales of $1,230,765$2,670,149 for the nine months ended May 31, 2020,2021, which was an increasea decrease of $1,439,384,$438,705, or 117%16%. Management has worked to refocus JCSC to better provide local growers with cleaning services which has led to significantly higher cleaning volumes. JCSCAlthough seed pricing is also advancing its strategy to increase its seed brokering and sales services. Salescurrently high, the extreme temperatures in the priorPacific Northwest that occurred during last year’s period were negatively affected by poor planting seasons caused by wet weather across North Americagrowing season resulted in lower harvested yields which reduced the demand for JCSC’s seed cleaning services. Typically, seed cleaning volumes increase during the Company’s clover4th and 1st fiscal quarters as harvest season begins in July. There has also been delays in shipping certain grass seed as a cover crop. orders to China during the current period due to their COVID related border shutdowns. For the nine-month period ended May 31, 2021,2022, JCSC had operating income of $94,339 compared to an operating loss of ($60,458)238,387) compared to operating income of $94,339 for the nine months ended May 31, 2020.2021.


The MSI-Pro division was wound up in fiscal 2020 as the Company exited the industrial tools segment. Sales at MSI for the nine months ended May 31, 2020 was $238,036 which represented the final liquidation of all of MSI’s remaining inventory, much of which was sold at a significant discount to the Company’s carrying value. For the nine months ended May 31, 2020 MSI had an operating loss of ($238,195).


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JC USA, the holding company that provides professional and administrative services for the wholly-owned operating subsidiaries had operating income of $245,108$586,749 compared to income of $505,597$245,108 for the nine months ended May 31, 2020.2021. The decreaseincrease is due to the addition of new personnel and higher administrative costsinventory levels in the current period and the costs of capital improvements.as JC USA charges its subsidiaries for warehousing services. The results of JC USA are eliminated on consolidation.


Gross margin for the nine-month period ended May 31, 20212022 was 26.3%23.5% compared to 27.0%26.3% for the nine months ended May 31, 2020. The lower margin2021. Significantly higher costs for raw materials, energy and both international and domestic shipping were incurred in the current period was due to higher costs related to shipping and logistical issues, and increased sales of lower margin lumber.period. Although we have successfully raised prices where possible, these price hikes are lagging the persistent increases in our product costs.


Operating expenses rose by $1,334,691$1,034,602 to $7,958,094$8,992,696 from operating expenses of $6,623,403$7,958,094 for the nine months ended May 31, 2020.2021. Selling, General and Administrative expenses increased to $2,556,902$2,798,094 from $2,118,999$2,556,902 which is commensurate with the higher level of sales in the current period. Wages and Employee Benefits increased to $5,226,021$5,957,601 from $4,343,412,$5,226,021, an increase of $882,609,$731,580, as the Company has hired additional personnel for its growth initiativesand increased wages in response to the current period.broad wage inflation being experienced by most industries throughout the area and the United States as a whole. Depreciation and amortization rose to $175,171$237,001 from $160,992.$175,171.


Other items resulted in a loss of ($294,097) which includes the accrual 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 was formerly rented to an unrelated company for $1,000 per month through January 2022. Interest expense related to the Company’s bank line of credit was $94,868. Other income in the currentprior nine-month period includesincluded a one-time gain on the extinguishment of debt of $687,387 which is the principal and accrued interest of the Company’s two SBA PPP loans which were forgiven during the current period. Interest and other income was a loss of ($283) compared to income of $21,414 in the prior year’s period, as the Company drew against its line of credit and incurred interest charges. Other items in the prior nine-month period ended May 31, 2020 included Gain on the Sale of Property, Plant and Equipment of $2,600.


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Income tax expense in the current nine monthnine-month period was $1,035,896$483,449 compared to $547,614$1,035,896 for the nine months ended May 31, 2020.2021. The Company estimates income tax expense for the period based on combined federal and state rates that are currently in effect.effect.


Net income for the nine months ended May 31, 2022 was $1,372,789, or $0.39 per basic and diluted share. The net income for the nine months ended May 31, 2021, including the one-time gain on the forgiveness of the Company’s PPP loans of $687,387, was $2,849,839, or $0.82 per basic and diluted share compared to net income of $1,216,089, or $0.33 per basic and diluted share, for the nine months ended May 31, 2020..


LIQUIDITY AND CAPITAL RESOURCES


As of May 31, 2021,2022, the Company had working capital of $18,495,447$19,722,563 compared to working capital of $16,815,454$19,073,194 as of August 31, 2020,2021, an increase of $1,679,993.$649,369. Cash and cash equivalents totaled $2,170,046, a decrease$2,130,450, an increase of $1,630,991$946,137 from cash of $3,801,037.$1,184,313. Accounts receivable increasedrose to $11,051,061$8,271,856 from $6,274,426$7,086,503 due to the seasonal cycle of sales to customers and the related timing of cash receipts. Inventory fellincreased by $1,430,506$5,507,438 to $7,767,640, including an allowance$19,898,803 from $14,391,365 as additional inventory continues to be stocked in preparation of $250,000 for obsolete inventory, which increased from the allowance of $65,000 as of August 31, 2020.Company’s historically busier Summer season and to alleviate supply chain disruptions. Prepaid expenses, which is largely related to down payments for future inventory purchases, rosedecreased by $1,544,728. Delays in receiving products$48,244. Prepaid income taxes fell to $3,876 from China$252,958. Deferred tax liability increased slightly to $128,497 from $116,945.

Current liabilities increased to $12,839,998 from $6,147,765, with most of the increase due to shipping delays and other logistical issues has contributedthe draw of an additional $6,000,000 from the Company’s bank line of credit to the lower inventory level and higher prepaid expenses$9,000,000 as of May 31,st. 2022 from $3,000,000 as of August 31, 2021. Accounts payable rose to $1,557,721$1,794,717 from $1,095,061, an increase of $462,660. Accrued$1,349,677, and accrued liabilities increased to $2,290,235$2,045,281 from $2,016,300. Bank indebtedness was $996,010 compared$1,798,088, including the accrual of $300,000 in the current period for the anticipated settlement of claims related to $Nil asthe Company’s dog waste bag sales in California. Subsequent to the end of August 31, 2020 asthe period, the Company drew on its linefinalized the settlement which requires the Company to pay the accrued $300,000 as a fine over a 4 month period with no admission of credit duringguilt by the third quarter. Income taxes payable increased by $189,594 to $230,190. Notes payable, which are the promissory notes PPP loans received in the 3rd quarter, declined by $680,707 to $Nil as the SBA forgave the entire amountCompany.

As of both loans in the period. Deferred tax liability fell to $39,184 from $96,952.


May 31, 2022, accounts receivable and inventory represented 87% of current assets and 76% of total assets. As of May 31, 2021, accounts receivable and inventory represented 80% of current assets and 69% of total assets comparedassets. Our accounts receivable balances have begun their usual seasonal decrease. Our customers continue to 72%pay on-time, with almost all of current assets and 63% of total assetsour outstanding receivables classified as of May 31, 2020.current. For the three months ended May 31, 2021,2022, the accounts receivable collection period, or DSO, was 4737 compared to 3947 for the three months ended May 31, 2020.2021. For the nine-month period ended May 31, 2021,2022, the DSO was 7049 compared to 6170 for the nine months ended May 31, 2020.2021. Inventory turnover for the three months ended May 31, 20212022 was 51112 days compared to 5451 days for the three months ended May 31, 2020.2021. For the nine months ended May 31, 2021,2022, inventory turnover was 75126 days compared to 8075 days for the nine months ended May 31, 2020.2021.


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External sources of liquidity include a lineLine of creditCredit from U.S. Bank of $5,000,000, which was increased from $3,000,000 subsequent to the end of the fiscal period.$10,000,000. As of May 31, 2021, 2022, the Company had a borrowing balance of $996,010,$9,000,000, leaving $2,003,990$1,000,000 available. Subsequent to the end of the 3rd fiscal quarter, we repaid an additional $1,000,000 against the Line of Credit, taking the balance to $8,000,000 with $2,000,000 of borrowing available. Borrowing under the lineLine of creditCredit is secured by an assignment of accounts receivable and inventory. The interest rate isInterest was previously calculated solely on the one monthone-month LIBOR rate plus 175 basis points. AsBeginning with the monthly interest payment due March 31, 2022, the Company’s Bank Line of Credit agreement was revised to change the calculation of the interest rate from the one-month LIBOR rate to the one-month Secured Overnight Financing Rate (SOFR). Interest is now calculated based on the one-month SOFR plus 157 basis points, which as of May 31, 2021, the one month LIBOR rate plus 175 basis points2022 was 1.875% (0.125%2.36% (0.79% + 1.75%1.57%). With the expected phase-out of LIBOR, the Company expects the calculated rate on the line of credit will be changed to another published reference standard before the planned cessation of LIBOR quotations sometime in 2021. However, the Company does not anticipate this change will have any significant effect on the terms and conditions, and ability to access, the line of credit, or on its financial condition. The line of credit has certain financial covenants. The Company is in compliance with these covenants.


During the 3rd quarter of fiscal 2020, the Company applied for and received two loans under the Paycheck Protection Program (the “PPP”) as part of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”). The Company feltbelieved the PPP funds were necessary because the Company was quickly depleting its available cash in April due to inventory purchases to fulfil customer orders ahead of its busiest selling season, some delays in receiving inventory from China due to reduced availability of ocean shipping, and the danger of potential COVID-19 infections. If any of the Company’s employees on site were to contract the virus during this time, the Company would behave been required to shut down the facility for a minimum of 14 days to clean and disinfect, and no product would be shipped to customers. Without the cash flow from product sales, the Company would have likely had to immediately layoff or furlough many of its employees, which would further delay the Company’s ability to recover after the shutdown. All of the proceeds from the PPP loans were used for employee payroll expenses.


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The principal amount of the PPP loans was $680,707. They had a term of 2 years with a 1% annual interest rate. Payments were originally deferred for 6 months, after which the repayment of principal and interest is required to be made in equal monthly payments over 18 months beginning December 4, 2020. However, the SBA subsequently revised the due date to either the date that SBA remits the borrower’s loan forgiveness amount to the lender or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period.period. In April 2021, the SBA approved the Company’s application for forgiveness of the entire amount of both loans. TheFor the year ended August 31, 2021, he Company has recorded a one-time gain on the extinguishment of debt of $687,387 consisting of the principal of $680,707 and accrued interest of $6,680.


Based on the Company’s current working capital position, its policy of retaining earnings, and the line of credit available, the Company has adequate working capital to meet its needs for the remainder of the current fiscal year.


The Company has historically used a portion of its excess cash to repurchase and cancel common shares. No common shares were repurchased during the first nine months of fiscal 20212022 ended May 31, 2021.2022. During the period,first quarter of fiscal 2022, the Company issued 7,9993,681 common shares to officers, directors and employees as compensation under the Company’s Restricted Share Plan at a deemed price of $8.80$10.70 per share.


Current Working Capital Requirements

Based on the Company’s current working capital position, combined with the expected timing of accounts receivable and the Bank Line of Credit, the Company is expected to have sufficient liquidity available to meet the Company’s working capital requirements for the remainder of fiscal 2022.

OTHER MATTERS

Inflation

Inflation did not have a material impact during fiscal 2020. Beginning in fiscal 2021, a number of product costs increased substantially, including raw materials, energy, and transportation/logistical related costs. These increases have continued to rise at a faster pace during fiscal 2022, particularly in the 2nd and 3rd fiscal quarters.

These higher costs have negatively affected the Company’s gross margins in the shorter term. Typically, the Company passes cost increases on to the customer, and is currently raising its product prices as much as the market will bear. Retailers are currently more receptive to such increases than in the past due to a mutual understanding of the current inflationary environment and the objective reasons for such. Since the ability of the Company to pass through all of the current increase in its product costs to its customers are somewhat limited and occur after such costs are first incurred, management expects that its gross margins will remain under pressure for the remainder of fiscal 2022. Management is doing its best to mitigate inflation’s effects by working with suppliers and logistic partners to reduce costs as much as possible.

Environmental, Social and Corporate Governance (ESG)

Jewett-Cameron endeavors to be a good steward and provide sustainable products with a positive impact. We strive to operate and grow in a way that honors our environment and relationships for the long term. This also aligns with one of our three value pillars: stewardship.

Environmental

For our products, the goal is that 90% of materials can be recycled. Our suppliers are audited to strict commercial and fair practice standards, including our own supplier qualifications regarding facilities, capacity, labor practices, and environmental awareness. Packaging is designed to maximize recyclability and re-use and minimize non-recycled materials, and all waste materials in our own facilities are segregated to maximize recycling. Our facilities have replaced high energy consumption infrastructure with energy efficient HVAC and lighting during our recent remodel.

Active products and designs utilize recycled content, plant-based material, or elimination of unnecessary components (such as a wasteful inner core for poop bag rolls) to enhance recycling and reduce greenhouse gas emissions in production. This includes the recently introduced dog waste bag which is a plant-based product that is less reliant on fossil fuels used in traditional plastic bags. We also dedicate a percentage of sales to organizations dedicated to improving the environment.

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Social

Our social responsibilities include cultural standards of operations and values which we establish in conjunction with our employees. We regularly provide employees with a corporate engagement survey to benchmark their engagement, satisfaction, and ideas for change. We support educational programs that build the future workforce through active participation in regional and statewide organizations, including the CTE/STEM Employer Coalition and assisting teachers to connect traditional school subjects to practical job site applications. The Company also actively participates in the local community, supported by a Corporate Charitable Giving Charter. We are committed to devoting resources to enhance the accessibility of our corporate website and have upgraded the website to improve accessibility and operability for users, including persons with disabilities.

We have adopted a Trade Compliance Policy as part of our commitment to abide by all applicable professional, ethical and legal standards of conduct, including full compliance with U.S. laws and regulations that govern both domestic and international trade transactions. A full copy of this Trade Compliance Policy has been posted on our public website.

Governance

As a public company, our processes are outlined and governed by multiple regulations, including Sarbanes-Oxley. Our financial controls are mapped, executed, self-audited as well as regularly audited by outside experts as part of our annual process. We have established risk mitigations that allows for condensed reviews of risks and impacts with our systems in place. A Company IT Governance team manages our cybersecurity framework and executes our programs for both ourselves and also for parties with whom we communicate and do business.

Uyghur Forced Labor Prevention Act

The Uyghur Forced Labor Prevention Act (“UFLPA”) is a US Federal Law signed by President Biden in December 2021 which became effective on June 21, 2022. As enforced by U.S. Customs and Border Protection, the UFLPA prohibits any products that are made, mined, or manufactured, in part or in full, in China’s Xinjiang Uyghur Autonomous Region to be imported into the United States, as they are presumed to have been made with forced labor. Any imports of such goods will be detained and seized by U.S. Customs unless the importer is able to prove that these goods have not been made with forced labor. The Company has ensured that each of its suppliers is in full compliance with the law and none of its products fall under the prohibited goods clause.

Business Risks


This quarterly report includes “forward–looking statements” as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates,” or “hopeful,” or the negative of those terms or other comparable terminology, or by discussions of strategy, plans or intentions. For example, this section contains numerous forward-looking statements. All forward-looking statements in this report are made based on management’s current expectations and estimates, which involve risks and uncertainties, including those described in the following paragraphs.


Approach to Risk Mitigation


We have completed a system wide risk mitigation matrix outlining possible impacts to the business due to such risks as well as mitigations in place. In addition, each category of risk is assigned to a senior management member who will monitor, act upon and report on such risks and mitigations. While these risks are broad, the management team has assigned probabilities of occurrence and used such for prioritization of actions. This process will remain an active part of ongoing risk oversight. The risks identified below are not meant to be exhaustive and are offered as those with greater probable impact.


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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.


Our shareholders could experience significant dilution if we issue our authorized 10,000,000 preferred shares.


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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 on NASDAQ was 4,9803,610 shares for the nine months ended May 31, 2021.2022. 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 nine months ended May 31, 2021,2022, our top ten customers represented 82%83% 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 the U.S., Canada and MexicoNorth America and are primarily in the retail home improvement industry.  and pet industries.


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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 which 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 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.


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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 $5,000,000,$10,000,000, of which $4,003,990$2,000,000 is currently available. We are currently in compliance with the requirements of our existing line of credit. If we lost access to 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. We have just recently performed a system wide assessment which included security risks by a third party, formed an IT Governance Committee and are both reviewing and acting on items found during the assessment. This body will remain a key part of our ongoing IT infrastructure. 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, 2020.2021. 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 3.Quantitative and Qualitative Disclosures about Market Risk


Item 3.

Quantitative and Qualitative Disclosures about Market Risk


Interest Rate Risk


The Company does not have any derivative financial instruments as of May 31, 2021.2022. However, the Company is exposed to interest rate risk.


The Company’s interest income and expense are most sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Company’s cash.


The Company has a line of credit whose interest rate may fluctuate over time based on economic changes in the environment. The Company is subject to interest rate risk and could be subject to increased interest payments if market interest rates fluctuate. The Company does not expect any change in the interest rates to have a material adverse effect on the Company’s results from operations.


- 28 -


Foreign Currency Risk


The Company operates primarily in the United States. However, a relatively small amount of business is currently conducted in currencies other than U.S. dollars, and the Company may experience an increase in foreign exchange risk as they expand their international sales. Also, to the extent that the Company uses contract manufacturers in China, currency exchange rates can influence the Company’s purchasing costs.

25 
Item 4.Controls and Procedures


Item 4.

Controls and Procedures


Disclosure Controls and Procedures

Management of the Company, including the Company’s Principal Executive Officer and Principal Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, our Principal Executive and Principal Financial Officer hashave concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


26 

Part II – OTHER INFORMATION


Item 1.Legal Proceedings

Legal ProceedingsA consortium of California District Attorneys has 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 is a named party in a Civil Action in Pennsylvania. The matter is an action seeking compensation for personal injuries and is based on theories of product liability as to Jewett-Cameron.the Company. The matter arises out of a dog allegedly escaping from a Jewett-Cameron kennel product and causing personal injuries to three individuals. Jewett-CameronThe Company is currently one of three named Defendants.  A trial date has not been set at this time.  At the present time it is speculative to predict as to its outcome. It is the Company’s intention to vigorously defend the lawsuit. Jewett Cameron’sThe Company’s applicable liability insurer is providing a defense covering Jewett-Cameron’sthe Company’s legal fees and costs.


The Company has initiated arbitration against a former distributor asserting a breach of the distribution agreement and seeking damages. This distributor had also raised a counter claimArbitration is tentatively scheduled to occur in Illinois federal court againstDecember 2022. While the Company asserting a breach of the same contract and seeking damages. That counter claim has been rejected by Illinois courts. While 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 outcome.


The company was made aware that it might likely see a claim initiated based on a State and Federal web accessibility concern. The company is in conference with the parties legal counsel seeking an opportunity to better understand the basis of the claim and means by which such claim can be addressed.


The Company does not know of any other material, active or pending legal proceedings against them; nor is the Company involved as a plaintiff in any other material proceeding or pending litigation. The Company knows of no other active or pending proceedings against anyone that might materially adversely affect an interest of the Company.


Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

---No Disclosure Required---


Item 3.

Defaults Upon Senior Securities

Item 3.Defaults Upon Senior Securities

---No Disclosure Required---


Item 4.  Mine Safety Disclosures

Item 4.Mine Safety Disclosures

---No Disclosure Required---


 

- 29 -


Item 5.

Other Information

Item 5.Other Information

---No Disclosure Required---

Item 6.Exhibits


Item 6.

Exhibits


3.1

Amended and Restated Articles of Incorporation of Jewett-Cameron Lumber Corporation

-= Filed as an exhibit to the 10-Q Quarterly Report filed on January 13, 2014 =-


3.2

Articles of Incorporation Jewett Cameron Company

-= Filed as an exhibit to the 10-Q Quarterly Report filed on January 13, 2014 =-


31.1

Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Charles Hopewell

32.1

Certification of Chief Executive Officer and Principal Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Charles Hopewell


101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document


3.1Amended and Restated Articles of Incorporation of Jewett-Cameron Lumber Corporation

- 30 -

-= Filed as an exhibit to the 10-Q Quarterly Report filed on January 13, 2014 =-

3.2

Articles of Incorporation of Jewett-Cameron Company.

-= Filed as an exhibit to the 10-Q Quarterly Report filed on January 13, 2014 =-
31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Chad Summers
31.2Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Mitch Van Domelen
32.1Certification of Chief Executive Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Chad Summers
32.2Certification of Chief Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Mitch Van Domelen
101.INSInline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


SIGNATURES


27 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Jewett-Cameron Trading Company Ltd.

(Registrant)


Date:  July 14, 2021

2022

/s/  “Charles Hopewell”“Chad Summers”

Charles Hopewell,Chad Summers,

CEO/CFOPresident and Chief Executive Officer


Date:  July 14, 2022/s/  “Mitch Van Domelen”

- 31 -Mitch Van Domelen,

Chief Financial Officer