JEWETT CAMERON TRADING CO LTD

Current report

Although we were challenged with changes to the economic and business climate in the 3 rd quarter, we continue to successfully advance in our efforts to improve our operations, broaden our customer base, and sharpen our focus on our core products. This focus includes the aggressive expansion of a major in-store product placement campaign for several of our key fence products in the 4 th quarter into fiscal 2025. This program signifies an important advance in our marketing programs as we work to increase our visibility and brand recognition with consumers.

Current report

Difficult economic conditions continued to negatively impact our operations during the 3 rd quarter, which were amplified with resurgent challenges and costs within the international supply chain. Stubbornly high inflation continues to restrain consumer spending, particularly on home improvement and pet products. Unseasonably cold and wet weather in our important Western US markets curtailed consumer spending on outdoor products during the 3 rd quarter.

Current report

In our fencing category, we are enhancing the visibility of our key products with new in-store displays. These in-aisle display units are positioned directly beside the wood racks for greater visibility of key products which increases sales of the items and improves consumer’s choices. Since their recent initial debut in select stores, these displays have both increased our visibility and reinforced our message of quality and functionality to the consumer. We have also increased our support to our customers around these display units to manage and maintain product availability and ensure timely replenishment to prevent out of stock. Displays are rolling out to many more stores in the 4 th quarter, and we are building on this momentum by adding in-store displays for some of our other fencing products into fiscal 2025.

Current report

Our lumber supply agreement with a major customer continues to perform well. Currently, there is a significant shortage of Western Red Cedar due to supply issues. To make up the shortfall, we have successfully shifted some of our supply to high-quality alternatives, including Sugi Cedar. Sugi fencing sells for a lower price than Western Red Cedar which negatively affects our margins. Demand from consumers may also be dampened in the 4 th quarter due to their lack of familiarity with this alternative product.

Current report

We are also expanding our sales channels and adding new customers throughout North America. The addition of a number of new Canadian customers this year has more than doubled our sales there in the current 9 month period compared to the same period of fiscal 2023. In Mexico, we recently shipped our initial container of our MyEcoWorld Post-Consumer Recycled plastic pet poop bags to customers there. This product is an important alternative to traditional plastic bags, and the shipment is a significant milestone for this product.

Current report

Supply chain issues have returned which are having an effect on our inventory availability. Shipping around the globe has been severely affected by shipping route diversions caused by conflict in the Red Sea and low water levels in the Panama Canal. As a result, many scheduled sailings have been delayed or cancelled, and container availability has been curtailed. A number of our recent supply orders have been delayed by these late and cancelled sailings from Asia. We are now suffering some inventory shortages and unavailability of certain products which is resulting in some missed sales and back orders awaiting container arrivals. In addition to the significant delays, the costs of ocean shipping have soared since Mid-May 2024. On May 1, 2024, new freight contracts became active and container prices quickly doubled, with the rates increasing every two weeks since then. We have notified our customers of the shipping delays and higher costs which we cannot fully absorb. Therefore, we will be temporarily increasing certain of our product prices. These price increases may reduce our sales as some of our customers may be unwilling to purchase the full amount of their usual orders at these higher prices and instead may wait to see if shipping costs fall later in 2024. Due to these supply chain issues and the higher shipping costs, we expect a negative effect on sales and margins during the fourth quarter and into fiscal 2025.

Current report

Our margins and financial results in the 3rd quarter were negatively affected by the clearance of some older higher cost lumber, and a one-time inventory write-down of $110,293 for the liquidation of all of our remaining pet inventory located in Europe. We are continuing to sell through some of the higher cost inventory we purchased during the prior high-cost logistics period. Some of our pet products continue to sell slowly as the overall pet supply market remains depressed. However, there are some signs that the pet market in the US may have bottomed and may begin to improve in the second half of calendar 2024 into calendar 2025 if the supply chain issues do not continue to worsen.

Current report

Our inventory as of the end of the 3 rd quarter was approximately $13.47 million compared to $17.58 million as of the end of the 2 nd quarter and $20.53 million at the end of fiscal 2023 Q3. We are continuing our efforts to concentrate on our core lines with new marketing and sales efforts, and adding new and innovative complementary products. We have engaged new suppliers in several countries outside of China. We arenow validating the processes and quality of the products from these suppliers that will complement our existing core products. Production and shipping of products will commence soon. Besides diversifying our supplier base, we expect to reduce our costs on these products by bypassing the China-specific US product tariffs.

Current report

Our balance sheet remains strong, with a current ratio (current assets divided by current liabilities) of 7.11 as of May 31, 2024. We have no borrowing against our bank line of credit as we were able to fully fund our 3 rd quarter operations and inventory purchases from our cash flow. Our prior bank line of credit expired on June 30, 2024 and a new asset-based line has been established with Northrim Funding Services (“Northrim”). Under the terms of the agreement Northrim will provide short-term operating capital by purchasing the Company’s accounts receivable invoices (“AR invoices”) at a discount below the face value of such invoices. The maximum of AR invoices Northrim will purchase at one time is limited to an amount equal to 80% of the net eligible accounts and an amount equal to 25% of all eligible inventory, but not to exceed funding on inventory of $4,000,000. Furthermore, the purchase of AR invoices is not to exceed $6,000,000. Although the interest rate on the line is higher than we were previously paying, it does provide uswith additional financial flexibility.

Current report

Jewett-Cameron Seed’s active operations ended on schedule on December 31, 2023. The majority of the segment’s equipment has been sold, with the remainder being marketed aggressively for final disposal. JCSC owns 11.7 acres of land and 105,000 square feet of buildings at the site in Hillsboro, Oregon which is one of the fastest growing cities in Oregon. The land is situated at a major interchange immediately adjacent to US Highway 26, which is one of the region’s busiest roadways. The Company is pursuing listing the property for future sale and is actively investigating current and potential alternate zoning from the current rural industrial classification. This would provide interested parties with greater flexibility of development options. There is a high level of interest from the cities immediately adjacent to the property in the potential expansion of their urban growth boundaries and the communities are investigating those potential options. Due to its strategic location, this property would potentially be included within the expanded area. Should such an expansion be approved and/or a rezoning occur, it would likely increase the land’s value and potentially maximize any return we receive for the sale of this surplus asset.

Current report

Our current focus remains growing our core product lines of fencing, Lucky Dog® brand pet containment products, and sustainable bags under the MyEcoWorld® brand. Our efforts are directed to growing our sales of both existing and new complementary products to our primary customers. We are also expanding our sales channels through the addition of new customers in our primary home improvement markets while increasing our marketing and sales efforts in several additional sectors in North America that we have identified as favorable fits for our core products. During the 3 rd quarter, we also initiated a strategic refresh of our branding to emphasize Jewett-Cameron’s combination of product quality, innovation and value which will further define our products with our customers and the consumer. We expect to unveil our updated branding and new marketing programs in the near future.

Current report

For the three months ended May 31, 2024, sales totaled $15,896,017 compared to sales of $18,945,738 for the three months ended May 31, 2023, which is a decrease of $3,049,721, or 16%. Our current sales were negatively impacted by poor weather conditions on the West Coast and new supply issues, including shortages in red cedar fencing.

Current report

Sales at JCC were $14,957,204 compared to sales of $17,158,549 for the quarter ended May 31, 2023, a decrease of $2,201,345, or 13%. Operating loss for JCC for the quarter ended May 31, 2024 was ($67,000) compared to operating profit of $977,922 for the quarter ended May 31, 2023. Our current results were hurt by the sharp rise in ocean shipping costs and the clearance of some older higher cost lumber inventory. We also incurred a one-time loss of $110,293 for the liquidation of all of our remaining pet inventory located in Europe.

Current report

Sales at JCSC were $14,046 compared to sales of $798,023 for the three months ended May 31, 2023. The regular operations at JCSC terminated on December 31, 2023 and no further significant revenue is expected from JCSC. The remaining assets are in the process of disposal before the subsidiary is wound-up. For the quarter ended May 31, 2024, JCSC had a loss from operations of ($6,350) compared to an operating loss of ($46,719) for the quarter ended May 31, 2023.

Current report

Gross margin for the three months ended May 31, 2024 was 18.6% compared to 23.3% for the three months ended May 31, 2023. Current margins dipped due to higher shipping costs incurred during the period, the one-time sale of certain high-cost lumber inventory, and the liquidation of our remaining pet inventory located in Europe.

Current report

Operating expenses for the three months ended May 31, 2024 were $2,895,481, which was a decrease of $266,872 from expenses of $3,162,353 in the three months ended May 31, 2023. Wages and employee benefits declined to $1,790,004 from $2,100,825 due to the lower headcount related to the closure of the seed operations. Selling, General and Administrative expenses rose to $1,026,071 from $961,566. Depreciation fell to $79,406 from $99,962. Gain on Sale of Assets was $1,450 compared to $Nil. Interest expense was $1,437 compared to expense of $152,905 due to lower amounts borrowed against the bank line of credit.

Current report

Nine Months Ended May 31, 2024 and May 31, 2023

Current report

For the nine months ended May 31, 2024, sales totaled $33,931,050 compared to sales of $39,666,658 for the nine months ended May 31, 2023. This represents a decrease of $5,735,608, or 14%. Consumers are maintaining their cautious outlook and are restraining their discretionary spending, with the home improvement and pet product sectors among the hardest hit. Our sales comparisons were also affected by the shut-down of JCSC, which was closed as of December 31, 2023. Revenues from JCSC were over $1.6 million higher in the nine months ended May 31, 2023 compared to the current nine-month period.

Current report

Sales at Greenwood were $2,883,190 for the current nine months compared to sales of $1,928,765 for the nine months ended May 31, 2023. This represents an increase of $954,425, or 49%. Demand for Greenwood’s products from our primary transit operator customers continues to rebound from the lows incurred during the pandemic. For the nine months ended May 31, 2024, Greenwood had operating income of $41,146 compared to an operating loss of ($80,097) for the nine months ended May 31, 2023.

Current report

Sales at JCSC for the nine months ended May 31, 2024 were $83,718 compared to sales of $1,708,454 for the nine months ended May 31, 2023. The remaining JCSC warehouse, office and infrastructure assets are being marketed for disposal in preparation of the subsidiary being wound-up. JCSC had income before income taxes of $32,242 for the current nine-month period compared to a loss of ($58,048) for the nine months ended May 31, 2023.

Current report

Gross margin for the nine-month period ended May 31, 2024 was 20.5% compared to 23.2% for the nine months ended May 31, 2023. Current margins dipped due to higher shipping costs incurred during the period, and the one time sale of certain high-cost lumber inventory and the liquidation of the remaining pet product inventory located in Europe.

Current report

Operating expenses declined to $8,431,989 from expenses of $9,159,478 recorded for the nine months ended May 31, 2023. Selling, General and Administrative expenses increased slightly to $2,941,978 from $2,884,463. Wages and Employee Benefits fell to $5,221,662 from $5,975,438 due to the lower headcount from the closure of the seed operations. Depreciation and amortization declined to $268,349 from $299,577.

Current report

We continue to remain focused on restructuring our working capital to provide greater liquidity and flexibility through cash generation. As of May 31, 2024, the Company had working capital of $20,050,299 compared to working capital of $18,987,180 as of August 31, 2023, an increase of $1,063,119.

Current report

Cash and cash equivalents totaled $1,054,704, an increase of $971,008 from cash of $83,696 as of August 31, 2023. Accounts receivable, which is based on the timing of sales and collection of payments, rose to $7,408,344 from $5,634,924. Inventory declined to $13,470,934 from $18,339,048. Prepaid expenses, which is largely related to down payments for future inventory purchases, rose by $771,684 to $1,402,472 from $630,788. A number of our orders have been produced but are delayed in China awaiting container space as the current frequency and availability of ocean shipping to North America is severely limited.

Current report

We have a new line of credit with Northrim where short-term operating capital will be provided by purchasing the Company’s accounts receivable invoices (“AR invoices”). The maximum of AR invoices Northrim will purchase at one time is limited to an amount equal to 80% of the net eligible accounts and an amount equal to 25% of all eligible inventory, but not to exceed funding on inventory of $4,000,000. Furthermore, the purchase of AR invoices is not to exceed $6,000,000. The maximum draw amount is currently available and the line will expire on June 30, 2025. 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.

Previous report

During the second quarter, the Company continued its efforts to improve our operations while focusing on our core product lines. Those core product lines are fencing, Lucky Dog® brand pet containment products, and our newest segment, sustainable bags under the MyEcoWorld® brand.

Previous report

We continue to endure the negative national economic pressures caused by changes in consumer spending and inflationary pressures. However, our results for the second quarter of fiscal 2024 demonstrate our progress in sharpening our focus on our core strengths. Although our revenues were only slightly higher for the current quarter than in the second quarter of fiscal 2023, the closure of our seed division meant there were minimal revenues from JCSC in the current period. Excluding revenue from JCSC, sales for the current quarter increased by 8% over the comparable quarter of fiscal 2023. Our gross margins also improved, and our operating expenses declined.

Previous report

The sell through of our older higher cost inventory has contributed to the improvement in our margins. This inventory was acquired during the pandemic when costs, particularly raw materials and shipping, were substantially higher than prevailing today. Inflation has also negatively affected our results, as the high rates of inflation that have prevailed since 2021 have resulted in our costs rising faster than our selling prices. Any price increases we enact must be made gradually as they take time to be accepted by our customers. Inflation rates have recently stabilized which is allowing us to better match our selling prices with our current costs.

Previous report

We have pulled back from our selling efforts in higher cost overseas markets and instead are focusing on adding new customers in North America. We acquired a significant number of new customers in the first six months of fiscal 2024 as we work to broaden and diversify our sales mix. In Canada, our sales for the current six months increased by 200% over the comparable period last year as we have added several important new customers there.

Previous report

Our inventory as of February 29, 2024 was approximately $17.58 million. With the exception of our slower moving pet products, we remain near our desired inventory levels for our core products as we enter into our historically busier Spring and Summer. This season is the second under our new lumber supply agreement with a major customer which requires us to maintain a higher level of lumber inventory than we did in prior years. This agreement is performing well, as it is providing us with more consistent and predictable sales and has increased the availability of our products in those stores. The market for our other fencing products is encouraging. One of our fence products launched in the last several years had a slow start but demand is now growing rapidly. We continue to innovate and are excited to introduce our newest fence product later this year to further expand our presence in the fence and gate category.

Previous report

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 report

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 report

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 report

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 report

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 report

Currently, we have no borrowing against our bank line of credit but we anticipate drawing against the line in the 3 rd quarter to fund inventory purchases for our busy Spring and Summer seasons. The line was recently renegotiated with the bank. At our request, the maximum draw was reduced from $10 million to $5 million as our current financial forecasts do not anticipate the need for us to borrow above that level. Our bank has decided that we do not currently meet their criteria for a bank line of credit, but it does not affect our treasury banking relationship with them. The revised line will terminate as of June 30, 2024, and contains new covenants, including a requirement that the Company will have a new lending agreement in place with a different lender as of May 31, 2024. We are currently in negotiations with other lenders, including asset based lenders, on establishing a new line of credit of $5 million or less. Although a new line may provide us with greater financial flexibility and the opportunity to better fit our credit arrangement to our current financial needs, it will likely include a higher interest rate than we were paying for borrowing under our previous line commensurate with the lower borrowing limit. We anticipate having one or more new funding and banking arrangements in place by the required date.

Previous report

We will continue to focus on our core product lines, including efforts to increase our sales to our primary customers and expanding our channels through the addition of new customers and complementary new products. We are also aggressively evaluating cost reductions without compromising our operational strengths and ability to connect and serve our customers. We continue to pursue favorable terms with our supply partners to keep order to receipt times reduced and optimize our capital outlays. Our search for new suppliers that will allow us to diversify our manufacturing base has yielded multiple potential partners. Many of these new sources are located outside of China which will also potentially reduce our costs by bypassing the country-specific China tariffs while maintaining our high product quality.

Previous report

For the three months ended February 29, 2024, sales were $8,229,192 compared to sales of $8,143,421 for the three months ended February 28, 2023, which was an increase of $85,771, or 1%. Although there was an additional day in the current period due to the leap year, the current quarter did not include a full period of sales from JCSC, which was closed as of December 31, 2023. JCSC recorded sales of $21,153 in the current quarter compared to sales of $558,923 in the second quarter ended February 28, 2023. Excluding revenue from JCSC, sales for the current quarter increased by $623,541, or 8%, over the comparable quarter.

Previous report

Sales at JCC were $7,383,965 for the three months ended February 29, 2024 compared to sales of $7,252,299 for the three months ended February 28, 2023. This represents an increase of $131,666, or 2%. Sales of our pet lines remain weak which reflects the current trend in the entire pet product industry. Operating loss for the current quarter was ($934,557) compared to an operating loss of ($1,415,462) for the quarter ended February 28, 2023. 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.

Previous report

Sales at Greenwood rose to $824,073 from sales of $332,691 for the three months ended February 28, 2023, which is an increase of $491,382, or 148%. Demand for Greenwood’s products from transit operators has improved as their ridership levels have begun to rebound from the pandemic lows. For the three months ended February 29, 2024, Greenwood had an operating loss of ($20,234) compared to an operating loss of ($61,221) for the three months ended February 28, 2023.

Previous report

All of JCSC’s operations have now ended as scheduled, with the seed storage operations closing on December 31 st. The remainder of the seed inventory was sold during the current quarter. Revenues were $21,153 for the three months ended February 29, 2024 compared to sales of $558,923 for the three months ended February 28, 2023.

Previous report

Gross margin for the three months ended February 29, 2024 was 25.1% compared to 23.6% for the three months ended February 28, 2023. The improvement was due to an improved sales mix of higher margin products and stabilizing costs, including raw material and shipping costs, in the current quarter.

Previous report

Operating expenses decreased by $339,424 to $2,791,203 compared to expenses of $3,130,627 for the three months ended February 28, 2023. The decline was due to the closure of JCSC and the related reduction of personnel, and lower spending on Professional Fees, including attorney’s fees, related to the Company’s now settled arbitration action against a former distributor. Selling, General and Administrative Expenses fell to $967,426 from $1,096,090 and Wages and Employee Benefits declined to $1,732,738 from $1,946,458. Depreciation and Amortization increased to $91,039 from $88,079. Interest income was $19,819 compared to interest expense of ($114,530) in the quarter ended February 28, 2023 which was primarily interest paid on amounts drawn from the Bank Line of Credit. Other items in the current quarter included a loss on the sale of assets of ($568).

Previous report

Six Months Ended February 29, 2024 and February 28, 2023

Previous report

For the six months ended February 29, 2024 sales decreased by $2,685,888, or 13%, to $18,035,033 from sales of $20,720,921 recorded in the six month period ended February 28, 2023.

Previous report

JCSC operations were permanently closed during the current six month period. The remaining seed inventory was sold, and seed storage operations ended as scheduled on December 31, 2023. Sales at JCSC for the six months ended February 29, 2024 were $69,672 compared to sales of $909,940 for the six months ended February 28, 2023. For the six months ended February 29, 2024, JCSC had an operating profit of $38,392 compared to an operating loss of ($11,329) for the six months ended February 28, 2023.

Previous report

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 report

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 report

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 report

External sources of liquidity include a line of credit from U.S. Bank. The line was $10,000,000 until February 28, 2024. On February 29, 2024, the line was renewed at the reduced amount of $5,000,000 at the Company’s request. This new line will expire on June 30, 2024. As a covenant of the new line, U.S. Bank is also requiring the Company to obtain a new lender and have a firm credit agreement in place by May 31, 2024. We are currently in discussions with various other lenders as we research and seek financial partners that align with our anticipated business needs that provide us the flexibility to best manage our business. Management anticipates having new credit agreements in place by the required May 31 st date.

Previous report

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.

Current report — wording carried from elsewhere

In September 2023, the Company successfully 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. 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.