JEWETT CAMERON TRADING CO LTD

Previous wording

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 November 30, 2023 and August 31, 2023 and its results of operations and cash flows for the three month periods ended November 30, 2023 and 2022 in accordance with U.S. GAAP. Operating results for the three month period ended November 30, 2023 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2024. 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.

Current wording

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 February 29, 2024 and August 31, 2023 and its results of operations and cash flows for the three and six month periods ended February 29, 2024 and February 28, 2023 in accordance with U.S. GAAP. Operating results for the three and six month periods ended February 29, 2024 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2024. 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.

Previous wording

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.

Current wording

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. JCSC ended all operations effective December 31, 2023 in preparation of being wound-up.

Previous wording

Pet product sales continue to lag compared to prior periods. The pet industry overall remains in a downturn from the surge of sales that occurred during the pandemic when many Americans remained at home. Inflation and a sharp reduction in American’s discretionary spending are also negatively affecting demand. As a result, many retailers have high levels of inventory on hand, and have limited their new orders of pet products. We expect these conditions to persist in fiscal 2024 until those retailers are able to work through that existing inventory. We are committed to maintaining our list prices on our primary pet products as there is no urgency to move this inventory since it will not degrade or spoil over time. For our slower moving pet products, we continue to explore opportunities to accelerate sales in those items.

Current wording

Sales of our pet containment products continue to lag as the entire pet industry remains in a post-pandemic downturn Consumers are spending significantly less on pet products as many workers have returned to the office. Inflation and the reduction of discretionary spending by American consumers are negatively affecting demand. Many retailers continue to have high levels of inventory on hand which is limiting their new orders of pet products. Although we are seeing positive signs that these conditions are beginning to improve, we expect these conditions to broadly persist in fiscal 2024, as retailers work through their existing inventory positions and adjust to the changes in consumer purchasing habits. We are committed to maintaining our list prices on our primary pet products as there is no urgency to move this inventory since it will not degrade or spoil over time. For our slower moving pet products, we continue to explore opportunities to accelerate sales in those items.

Previous wording

Greenwood’s industrial lumber sales increased by 87% over the comparative quarter in fiscal 2023. Greenwood’s primary customers are in the transit sector which is beginning to rebound from the COVID-19 pandemic as more workers return to the office. We recently hired a new trader in September. This will expand our marketing and sales capabilities not only in our current sectors, but will also help develop our entry into new markets, such as in construction.

Current wording

At Greenwood, sales have grown by 108% in current six months of fiscal 2024 compared to the comparable period for fiscal 2023. Results have benefited from higher demand from Greenwood’s primary customers in the government and transit sector where ridership is rebounding from the lows experienced during the COVID-19 pandemic as more workers return to the office. We continue to seek to add additional traders to expand our marketing and sales capabilities. This will enhance our efforts in our current markets and will also help develop our potential entry into new and larger markets, such as in construction.

Previous wording

The official launch of our MyEcoWorld® sustainable bag products occurred in the 4 th quarter of fiscal 2023. This represents an important new opportunity for the Company, as these products are consumables and offer recurring, non-seasonal sales that can provide revenue during our historically lower revenue quarters. Sales are beginning to grow. Though overall unit volumes are still relatively small, it does indicate that consumers are receptive to new sustainable alternatives to hydrocarbon derived plastic products. Although we are marketing these products to some of our existing home improvement and pet customers, many of the primary retailers for these products are not current customers. We are actively working to connect with these new outlets and present them with these innovative products. Building these new relationships takes time to establish and drive sales momentum, but we are encouraged by our progress and the positive consumer response we have received since the launch.

Current wording

Sales of our sustainable bag products under our MyEcoWorld® brand are growing since its initial soft launch in the 4 th quarter of fiscal 2023. The products fully launched through some of our distribution channels in January 2024, but are currently a relatively small portion of our sales mix. We expect it will take time for sales of these new and innovative premium products to gain traction with retailers and consumers. This represents an important new opportunity for the Company, as these trash bags, bin liners and pet waste bags are consumables that customers use regularly and offer recurring, non-seasonal sales that can provide the Company with revenue during our historically lower revenue quarters. Although we are marketing these products to some of our existing home improvement and pet customers, many of the primary retailers for these products are not current customers. We are actively working to connect with these new outlets and present them with these innovative products. The recurring nature of consumer purchases of these products also provides us with the opportunity to initiate a direct to consumer subscription service to secure ongoing repeat sales.

Previous wording

The announced restructuring of Jewett-Cameron Seed remains on schedule for the end of calendar 2023. During fiscal 2023, management concluded a comprehensive strategic review of the seed segment. As a result of this review, the Board of Directors made the difficult decision to end operations at JCSC. JCSC had not reported a full-year profit since fiscal 2020, and its business model was no longer sustainable due to fewer seed growers in the area, less demand for its seed marketing and sales services, and much higher operating costs. Seed cleaning operations ended as of August 31, and all the remaining seed inventory has been sold. Seed storage operations are anticipated to end December 31. Most of the segment’s equipment has also been sold, with the remainder expected to be disposed of over the next several months. Some of the JCSC staff were moved to other roles within the Company, and transition services were offered for the remainder who were terminated effective August 31, 2023.

Current wording

The final closure of Jewett-Cameron Seed operations occurred on schedule and seed storage ended as of December 31, 2023 after seed cleaning operations ended as of August 31, 2023. All of the seed inventory has been sold, and the majority of the segment’s equipment has also been sold, with the remainder expected to be disposed of shortly. Some of the JCSC staff were moved to other roles within the Company, and transition services were offered for the remainder who were terminated effective August 31, 2023. The decision by the Board of Directors to close JCSC was a difficult one, but JCSC had not reported a full-year profit since fiscal 2020, and its business model was no longer sustainable due to fewer seed growers in the area, less demand for its seed marketing and sales services, and much higher operating costs. The closure reduces our costs and operational risk and reinforces our focus on our core product lines.

Previous wording

JCSC owns 11.7 acres of land and 105,000 square feet of buildings in Hillsboro, Oregon. The land is very well located at a major interchange immediately adjacent to busy US Highway 26, which is a primary route linking Metro Portland to its Northwest suburbs and then to the Coast beaches. Its close proximity to Portland has meant that since 1990, Hillsboro has been one of the fastest growing cities in Oregon. Much of its original farmland has already been converted into residential areas and new business and industrial developments, including high-technology campuses. JCSCs land, which lies west of downtown Hillsboro, is currently zoned for agricultural use. However, there have been ongoing governmental discussions about the possibility of extending the Urban Growth Boundary (UGB) further to the west. These potential boundary changes, if they were to occur, could encompass JCSC’s land and allow for a rezoning to residential, commercial or industrial use. However, the process to change the UGB requires approval by the regional government council or the Governor of the State of Oregon. It may also require various other approvals and certain legal and regulatory changes. A voter referendum has been approved for a May election that, if passed, could significantly delay the approval and further submission of the UGB for various agency approval. The Company is investigating with the County all appropriate actions it could take to have the property zoned that could maximize its longer-term value. There is no guarantee this process will be initiated, or ultimately be successful. If the UGB does not change, it would restrict the permitted uses for the land and limit its value. Although the property has not been listed for sale, we are receiving unsolicited inquiries from third-parties interested in the potential purchase of the land and buildings. The ultimate disposition of these assets has not been determined but will be studied by the Board before any final decision is reached.

Current wording

JCSC owns 11.7 acres of land and 105,000 square feet of buildings in Hillsboro, Oregon. The land is very well located at a major interchange immediately adjacent to busy US Highway 26, which is a primary route linking Metro Portland to its Northwest suburbs and then to the Coast beaches. Its close proximity to Portland has meant that since 1990, Hillsboro has been one of the fastest growing cities in Oregon. Much of its original farmland has already been converted into residential areas and new business and industrial developments, including high-technology campuses. JCSCs land, which lies north of downtown Hillsboro within the traditional farming area, is currently zoned for Industrial Agricultural related operations. The property is situated outside the current regional Urban Growth Boundary (UGB) which legally defines the possible uses of land in the Greater Portland region. However, there have been ongoing governmental discussions about the possibility of extending the UGB further to the west. These potential boundary changes, if they were to occur, could encompass JCSC’s land and allow for a rezoning to residential, commercial or broader industrial use which would likely increase its value. We have not yet made anydecision regarding the future use of our property. The Company and Board are studying various options to determine its best use in consideration of the local and regional Governments’ intentions to balance potential growth opportunities and the interests of the existing local population within the UGB framework.

Previous wording

During the quarter, we successfully settled the arbitration we filed against one of our former distributors in 2021 for breach of a distribution agreement. Under the settlement agreement, we received a one-time cash payment of $2,450,000 in October. This payment covered our substantial legal fees and some of our losses due to the breach. We are pleased to have settled the case and that we will no longer have to expend time and money pursuing this case. Our costs to pursue this action have been sizeable and were included in our selling, general and administrative costs and reduced our income from operations accordingly. Even though the costs in this case were material, we believe it is critical to defend our valuable intellectual property and will take action against any future infringements of our patents, trademarks and contractual agreements.

Current wording

We successfully settled the arbitration we filed against one of our former distributors in 2021 for breach of a distribution agreement during the first quarter of fiscal 2024. We received a one-time cash payment of $2,450,000 in October under the settlement agreement. This payment covered our substantial legal fees and some of our losses due to the breach. We are pleased to have settled the case and that we will no longer have to expend time and money pursuing this case. Our costs to pursue this action have been sizeable and reduced our income from operations accordingly. Even though the costs in this case were material, we believe it is critical to defend our valuable intellectual property and will take action against any future infringements of our patents, trademarks and contractual agreements.

Previous wording

The net income for the quarter ended November 30, 2023, including the one-time gain from the arbitration settlement, was $1,291,541, or $0.37 per share, compared to a net loss of ($73,760), or ($0.02) per share, for the quarter ended November 30, 2022.

Current wording

Net loss for the quarter ended February 29, 2024 was ($534,145), or ($0.15) per basic and diluted share, compared to a net loss of ($972,038), or ($0.28) per basic and diluted share, for the quarter ended February 28, 2023.

Previous wording

Sales at JCC were $8,622,972 compared to sales of $11,619,082 for the three months ended November 30, 2022, which was a decrease of $2,996,110, or 26%. Current sales have been negatively affected by reduced discretionary spending by American consumers, particularly in the pet and home improvement sectors. Sales comparisons were also affected by a one-time order for kennels in last year’s first quarter which was not repeated in this year’s quarter. Operating loss for JCC was ($1,064,341) compared to an operating loss of ($156,651) for the quarter ended November 30, 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.

Current wording

Sales at JCC were $16,006,938 for the six months ended February 29, 2024 compared to sales of $18,871,381 for the six months ended February 28, 2023, which was a decrease of $2,864,443, or 15%. American consumers continue to be cautious with their discretionary spending, including in the pet and home improvement sectors. Sales comparisons between the current six month period and the year-ago period were affected by a one-time order for kennels in last year’s six month period. Operating loss at JCC for the six months ended February 29, 2024 was ($1,998,898) compared to an operating loss of ($1,572,114) for the six months ended February 28, 2023. Overall, the operating results of JCC are seasonal with the first two quarters of the fiscal year being slower than the final two quarters of the fiscal year.

Previous wording

Sales at Greenwood were $1,134,351 for the three months ended November 30, 2023 compared to sales of $606,909 for the three months ended November 30, 2022, which was an increase of $527,442, or 87%. Sales to municipalities and transit operators, which are Greenwood’s largest customers, have begun to improve post-pandemic as more users have returned to offices and increased demand for transit services. Management continues to seek new brokers to both open new sales channels and broaden its customer base. For the quarter, Greenwood had an operating income of $61,617 compared to an operating loss of ($44,246) for the three months ended November 30, 2022.

Current wording

Sales at Greenwood were $1,958,424 for the six months ended February 29, 2024 compared to sales of $939,600 for the six months ended February 28, 2023, which is an increase of $1,018,824, or 108%. Sales to municipalities and transit operators, which are Greenwood’s largest customers, have begun to improve post-pandemic as more users have returned to offices and increased demand for transit services. The Company is continuing to seek to hire additional brokers as management believes the segment can grow by opening new sales channels and broadening its customer base. For the six months ended February 29, 2024, Greenwood had operating income of $41,383 compared to an operating loss of ($105,466) for the six months ended February 28, 2023.

Previous wording

JC USA is the holding company for the wholly-owned operating subsidiaries. For the quarter ended November 30, 2022, JC USA had operating income of $212,290 compared to operating income of $121,040 for the quarter ended November 30, 2022. The results of JC USA are eliminated on consolidation.

Current wording

JC USA, the holding company that provides professional and administrative services for the wholly-owned operating subsidiaries had operating income of $505,263 for the six months ended February 29, 2024 compared to operating income of $270,944 for the six months ended February 28, 2023. The results of JC USA are eliminated on consolidation.

Previous wording

Gross margin for the three month period ended November 30, 2023 was 19.9% compared to 22.7% for the three months ended November 30, 2022. Our margins remain under pressure as we work off high-cost inventory acquired during the period of higher shipping and raw-material costs. We also sold some older, slower moving lumber inventory at reduced margins during the current period which also negatively affected our margins.

Current wording

Gross margin for the six-month period ended February 29, 2024 was 22.3% compared to 23.1% for the six months ended February 28, 2023. Margins were constrained during the current six month period as we continued to work off higher-cost inventory acquired during the period of high shipping and raw-material costs experienced during and immediately after the COVID-19 pandemic. During the current six month period we also sold some older, slower moving lumber inventory at reduced margins.

Previous wording

Operating expenses declined to $2,745,305 from $2,866,498 recorded in the three months ended November 30, 2023. Selling, General and Administrative Expenses rose to $948,481 from $826,807. Wages and employee benefits fell to $1,698,920 from $1,928,155 due to a decline in employee headcount related to the wind-down of operations at JCS. Depreciation and Amortization decreased to $97,904 from $111,536.

Current wording

Operating expenses for the six months ended February 29, 2024 declined to $5,536,508 from $5,997,125. Selling, General and Administrative Expenses were flat at $1,915,907 compared to $1,922,897. Wages and Employee Benefits fell to $3,431,658 from $3,874,613 due to a lower employee headcount after the end of operations at JCSC. Depreciation and Amortization decreased to $188,943 from $199,615 for the six months ended February 28, 2023.

Previous wording

In September 2023, the Company settled its arbitration case against one of its former distributors for a cash payment of $2,450,000. We accounted for the one-time gain as other income. Other items include a gain on sale of assets of $89,655 which largely is due to the sale of JCS equipment. Net interest expense in the current period was ($6,855) compared to interest expense of ($86,552) during the period ended November 30, 2023 which was related to amounts borrowed against our bank line of credit.

Current wording

In September 2023, the Company settled its arbitration case against one of its former distributors for a cash payment of $2,450,000. We accounted for the one-time gain as other income. Other items include a gain on sale of assets of $89,087 which largely is due to the sale of JCSC equipment, and net interest income of $12,964. For the six months ended February 28, 2023, interest expense totaled ($201,082) which was related to amounts borrowed against our bank line of credit.

Previous wording

Income before income taxes was $1,743,576 for the quarter ended November 30, 2023 compared to a loss before income taxes of ($93,350) for the quarter ended November 30, 2022. Income tax expense in the current quarter was ($452,035) compared to income tax recovery of $19,590 in the prior year’s quarter. The Company estimates income tax expense for the quarter based on combined federal and state rates that are currently in effect.

Current wording

Income tax expense for the six months ended February 29, 2024 was ($278,745) compared to income tax recovery for the six months ended February 28, 2023 of $372,167. The Company estimates income tax expense for the period based on combined federal and state rates that are currently in effect.

Previous wording

As of November 30, 2023, the Company had working capital of $20,501,272 compared to working capital of $18,987,180 as of August 31, 2023, an increase of $1,514,092. Cash and cash equivalents totaled $3,558,168, an increase of $3,474,472 from cash of $83,696. The increase was due to the receipt of the arbitration settlement, as well as the timing of collection of accounts receivable, which fell to $3,365,430 from $5,634,924. Inventory decreased by $825,631 to $17,513,417 from $18,339,048. Prepaid expenses, which is largely related to down payments for future inventory purchases, declined slightly to $613,358 from $630,788.

Current wording

As of February 29, 2024, the Company had working capital of $20,097,211 compared to working capital of $18,987,180 as of August 31, 2023, an increase of $1,110,031. Cash and cash equivalents totaled $1,149,316, an increase of $1,065,620 from cash of $83,696. The increase was due to the receipt of the arbitration settlement, as well as the timing of collection of accounts receivable, which fell to $4,676,317 from $5,634,924. Inventory decreased by $762,261 to $17,576,787 from $18,339,048. Prepaid expenses, which are largely related to down payments for future inventory purchases, rose to $796,393 from $630,788.

Previous wording

Current liabilities fell to $4,549,101 from $5,701,276. The largest component of the decline was bank indebtedness, which was $Nil as of November 30, 2023 compared to $1,259,259 as of August 31, 2023 as the Company fully repaid its borrowing under the bank line of credit during the quarter. Accounts payable rose to $2,802,837 from $2,181,194, and accrued liabilities declined to $1,396,519 from $2,113,194. Income taxes payable rose to $349,745 from $147,629, with the increase related to the tax payable on the arbitration settlement.

Current wording

Current liabilities fell to $4,101,602 from $5,701,276. The largest component of the decline was bank indebtedness, which was $Nil as of February 29, 2024 compared to $1,259,259 as of August 31, 2023 as the Company fully repaid its borrowing under the bank line of credit during the current period. Accounts payable rose to $2,190,006 from $2,181,194, and accrued liabilities declined to $1,738,874 from $2,113,194. Income taxes payable rose to $172,722 from $147,629.

Previous wording

As of November 30, 2023, accounts receivable and inventory represented 83% of current assets and 70% of total assets compared to 97% of current assets and 80% of total assets as of August 31, 2023. For the three months ended November 30, 2023, the accounts receivable collection period, or DSO, was 31 days compared to 38 days for the three months ended November 30, 2022. Although the Company’s level of non-current and past-due invoices is not a significant percentage of its overall accounts receivable, management continues its efforts to collect on its aged accounts and reduce the DSO. Inventory turnover to the three months ended November 30, 2023 was 206 days compared to 200 days for the three months ended November 30, 2022.

Current wording

As of February 29, 2024, accounts receivable and inventory represented 92% of current assets and 77% of total assets compared to 97% of current assets and 80% of total assets as of February 28, 2023. For the three months ended February 29, 2024, the accounts receivable collection period, or DSO, was 52 compared to 47 for the three months ended February 28, 2023. For the six-month period ended February 29, 2024, the DSO was 47 compared to 37 for the six months ended February 28, 2023. Inventory turnover for the three months ended February 29, 2024 was 258 days compared to 326 days for the three months ended February 28, 2023. For the six months ended February 29, 2024, inventory turnover was 232 days compared to 248 days for the six months ended February 28, 2023.

Previous wording

External sources of liquidity include a line of credit from U.S. Bank of $10,000,000. During the first quarter, the Company fully repaid the balance borrowed against the line and had the full amount of $10,000,000 available as of November 30, 2023. Borrowing under the line of credit is secured by an assignment of accounts receivable and inventory. Interest was previously calculated solely on the one-month LIBOR rate plus 175 basis points. Beginning 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 November 30, 2023 was 6.90% (5.33% + 1.57%). The line of credit has certain financial covenants. The Company is in compliance with these covenants.

Current wording

During the first quarter of fiscal 2024, the Company fully repaid the balance borrowed against the line and had the full amount of $5,000,000 available as of February 29, 2024. Borrowing under the line of credit is secured by an assignment of accounts receivable and inventory. Interest is calculated based on the one-month Secured Overnight Financing Rate (SOFR) plus 157 basis points, which as of February 29, 2024 was 6.89% (5.33% + 1.57%).

Previous wording

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 2024.

Current wording

Based on the Company’s current working capital position, combined with the expected timing of accounts receivable and the expectation that a new credit agreement will be established prior to the expiration of the current 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 2024.

Previous wording

The increases in interest rates as a result of the higher level of inflation in the US economy experienced beginning in calendar 2021 and continuing through 2022 and 2023 has also had a negative effect on the Company’s interest expense paid for its borrowing under its line of credit. The interest rate paid by the Company increased from 5.39% as of November 30, 2022 to 6.90% as of November 30, 2023. The Company repaid the remaining amount borrowed under the line in October 2023, and currently has no borrowing against the line.

Current wording

The increases in interest rates as a result of the higher level of inflation in the US economy has also had a negative effect on the Company’s interest expense paid for its borrowing under its line of credit. The interest rate under the line has risen in conjunction with the increase in the prevailing interest rates, and is 6.89% as of February 29, 2024. The Company repaid the remaining amount borrowed under the line in October 2023, and currently has no borrowing against the line.

Previous wording

The Company’s common shares currently trade within the NASDAQ Capital Market in the United States. The average daily trading volume of our common stock was approximately 5,000 shares on NASDAQ for the fiscal year ended August 31, 2023, and 4,150 for the quarter ended November 30, 2023. With this limited trading volume, investors could find it difficult to purchase or sell our common stock.

Current wording

The Company’s common shares currently trade within the NASDAQ Capital Market in the United States. The average daily trading volume of our common stock was approximately 5,000 shares on NASDAQ for the fiscal year ended August 31, 2023, and 4,550 for the six months ended February 29, 2024. With this limited trading volume, investors could find it difficult to purchase or sell our common stock.

Previous wording

For the three months ended November 30, 2023 our top ten customers represented 94% of our total sales, and our single largest customer was responsible for 35% of our total sales. We would experience a significant decrease in sales and profitability and would have to cut back our operations, if these customers were lost and could not be replaced. Our top ten customers are located in North America and are primarily in the retail home improvement and pet industries.

Current wording

For the six months ended February 29, 2024 our top ten customers represented 93% of our total sales, and our single largest customer was responsible for 35% of our total sales. We would experience a significant decrease in sales and profitability and would have to cut back our operations, if these customers were lost and could not be replaced. Our top ten customers are located in North America and are primarily in the retail home improvement and pet industries.

Previous wording

We have a line of credit with U.S. Bank in the amount of $10 million, of which the entire amount is available. We are currently in compliance with the requirements of our existing line of credit. If we lost access to this line of credit it could negatively affect our ability to pay some of our creditors on a timely basis.

Current wording

We have a line of credit with U.S. Bank in the amount of $5 million, of which the entire amount is available. The current line will expire on June 30, 2024. We are currently in discussions with other lenders regarding the establishment of new credit facilities, but there is no guarantee that a new line will be in place by July 1 st. If we lost access to credit it could negatively affect our ability to acquire inventory to fulfil our customers’ orders and pay our obligations on a timely basis.