# Jewett Cameron Trading Co Ltd: Form 10-Q for the period ended May 31, 2023

- Company: [Jewett Cameron Trading Co Ltd](/companies/jctc.md) (CIK 885307)
- Form: 10-Q
- Filed: 2023-07-13
- Accepted by EDGAR: Jul 13, 2023, 16:40 ET
- Period: 2023-05-31
- Accession: 0001079973-23-000950
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/885307/000107997323000950/jctc_10q-053123.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/885307/000107997323000950/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-05-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-03-01 to 2023-05-31 | $18.9m | us-gaap:Revenues |
| Revenue | 9 months, 2022-09-01 to 2023-05-31 | $39.7m | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-03-01 to 2023-05-31 | $14.5m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2022-09-01 to 2023-05-31 | $30.5m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-03-01 to 2023-05-31 | $4.4m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-09-01 to 2023-05-31 | $9.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-03-01 to 2023-05-31 | $961.6k | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-09-01 to 2023-05-31 | $2.9m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-03-01 to 2023-05-31 | $1.3m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2022-09-01 to 2023-05-31 | $34.1k | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-03-01 to 2023-05-31 | $152.9k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-09-01 to 2023-05-31 | $354.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-03-01 to 2023-05-31 | $363.2k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-09-01 to 2023-05-31 | −$9.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-03-01 to 2023-05-31 | $735.0k | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-09-01 to 2023-05-31 | −$310.8k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-03-01 to 2023-05-31 | $0.21 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-09-01 to 2023-05-31 | −$0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-03-01 to 2023-05-31 | $0.21 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-09-01 to 2023-05-31 | −$0.09 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-03-01 to 2023-05-31 | 3,498,899 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-09-01 to 2023-05-31 | 3,498,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-09-01 to 2023-05-31 | $1.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-09-01 to 2023-05-31 | $215.7k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-05-31 | $2.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-05-31 | $31.6m | us-gaap:AssetsCurrent |
| Total assets | at 2023-05-31 | $36.9m | us-gaap:Assets |
| Total liabilities | at 2023-05-31 | $13.1m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-05-31 | $23.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 43,382 characters.

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

Industrial wood products

Lawn, garden, pet and other

Seed processing and sales

Corporate and administration

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. JCC operates out of a 5.6 acre owned facility located in North Plains, Oregon that includes offices, a warehouse, and a paved yard. This business is a wholesaler, and a manufacturer and distributor of products that include an array of pet enclosures, kennels, and pet welfare and comfort products, proprietary gate support systems, perimeter fencing, greenhouses, and fencing in-fill products made of wood, metal and composites. Examples of the Company’s brands include Lucky Dog®, for pet products; Adjust-A-Gate™, Fit-Right®, Perimeter Patrol®, and Lifetime Post™ for gates and fencing; Early Start, Spring Gardner™, Greenline®, and Weatherguard for greenhouses. JCC uses contract manufacturers to manufacture these products. Some of the products that JCC distributes flow through the Company’s facility in North Plains, Oregon, and some are shipped direct to the customer from the manufacturer. Primary customers are home centers, eCommerce partners, on-line direct consumers as well as other retailers.

The seed processing and sales segment reflects the business of Jewett-Cameron Seed Company (JCSC). JCSC processes and distributes agricultural seed. Most of this segment’s sales come from selling seed to distributors with a lesser amount of sales derived from cleaning seed. The Company has announced that it will cease regular operations at JCSC effective August 31, 2023, with final closure expected by the end of calendar 2023.

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 and some of its sustainable bag 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.

### Results of Operations

Our third quarter results were negatively affected by the historically bad and unseasonal winter weather across much of the United States that extended into April. This significantly delayed the usual ordering of our outdoor products by many of our customers, particularly retail hardware and Big Box stores, and shortened the Spring and Summer sales season. This delay has caused a decline in our overall sales beginning in the third quarter as our customers scaled back their purchases to reflect the shortened selling season.

Our primary markets also continue to be affected by the challenging economic climate and shifts in consumer spending habits. Inflationary pressures experienced in many sectors appear to have softened overall demand in our home improvement and pet channels. Although our sales in the third quarter of fiscal 2023 were 9% lower than the sales in the third quarter of fiscal 2022, it is worth noting that this level of sales is about 17% higher than the sales we recorded in our initial third quarter of the pandemic period in 2020, which continues to provide us optimism that our overall markets are still growing.

Fence sales have been strong with several product lines exceeding our expectations. We have reinforced and expanded our partnership with several retailers resulting in increased visibility of our products as well as a much greater degree of review of our product movement through their stores so that we may better assist them in keeping their shelves stocked. Warehouse inventory has been greatly reduced since our peak in January lead by our fence product sales. We are now at our desired inventory levels for most of our key fence products.

Our switch earlier this year with a major lumber retailer is going very well. The sales to date are positive and support our belief that the new arrangement will provide us with more regular and predictable fencing sales with this customer while improving the availability of the product in their stores, although it does require us to maintain a higher level of fencing inventory than we had under the prior agreement.

Our pet product sales have not picked back up to previous year volumes on certain products. The relaunch of one of our kennel products earlier this calendar year and resolving the interruption with a significant on-line retailer have begun to positively impact our pet category sales. We expect this to address some of our depressed sales in this category from the second and third quarters and set us on track to increase sales back to previous levels in the fourth quarter and beyond. Other pet product inventory items remain higher than usual and have not yet seen desired sales growth. Some of this is due to previous quality issues from our suppliers. Our team has since strengthened our Quality Assurance program to prevent quality issues and improve the consumer experience with our products across all of our lines. We continue to explore opportunities to accelerate the sales of our slower moving pet products.

Our new MyEcoWorld® sustainable bag products completed their soft-launch in the 3rd quarter, with the full launch expected in the 4th quarter of fiscal 2023. Under our distribution agreement with SECOS Group of Australia, Jewett-Cameron is the exclusive distributor of their MyEcoWorld® sustainable bag products in the US and Canada. This new sustainable product line fits very well into our goal of increasing our product mix by bringing innovative premium products to the market that also support our desire to be good stewards of the earth. We are optimistic of the potential of this new product line to grow into a significant segment of our business over time as consumers are increasingly seeking more environmentally friendly alternatives to conventional hydrocarbon derived plastic products. Our success with our compostable poop bag since its launch several years ago indicates these products are less seasonal and can provide positive contributions to our historically lower revenue quarters.

Greenwood’s primary customers in the transit sector are beginning to recover from the severe decline in ridership and shortages of other vehicle components experienced during the COVID-19 pandemic. Their orders for Greenwood’s products have picked up and is reflected in the 14% increase in sales during the current 3rd quarter compared to the 3rd quarter of fiscal 2022. We remain active in our search for new traders to both bring on new customers in other sectors, such as construction, as well as take advantage of appealing new opportunities for our existing products, such as fabricated panels.

During the 3rd quarter, management conducted a strategic review of the seed segment, including its capital needs and its potential to provide value to the Company going forward. As a result of this review, the Board of Directors made the difficult decision to close JCSC effective August 31, 2023. When the seed operation was first opened in 1965, and then acquired by the Company in 2000, the local area around the JCSC operations was rural and dominated by large farming operations, including grass seed farms which made up JCSC’s customers. In our region, many agricultural customers continue to convert previous acreage from cyclical grass seed to higher value crops, such as berries and filberts for example. Consequently, JCSC has been receiving lower quantities and quality of seed for processing and experiencing less demand for its marketing and sales in recent years. In addition, JCSC’s building and equipment are nearing the end of their expected operating life. Over the last several years, the higher costs of maintenance required to maintain operations have had a substantial negative effect on JCSC’s margins. Taking into consideration the current economic and market trends, and the high cost of new equipment, the Board determined an orderly wind-down of operations and closure of JCSC was the most prudent action.

The wind-down of operations and JCSC began in April and has been proceeding smoothly, which has been greatly aided by the retention of the entire JCSC staff. Seed cleaning operations of the seed that was already within the building are continuing, but no additional seed is being accepted for processing. Nearly half of the seed inventory held at the time of the closure announcement has already been sold, as well as some of the equipment, which has exceeded management’s expectations. The end of operations and full closure of the facility is expected to be completed by the end of calendar 2023. JCSC owns 11.7 acres of land and 105,000 square feet of buildings in Hillsboro, Oregon. The ultimate disposition of these assets has not been determined and will be evaluated by the Board.

The company’s use of borrowed funds have primarily been used to fund inventory purchases. As a result of the worldwide supply chain disruptions and other macro-economic issues experienced over the last several years, the Company’s inventory levels are higher than they have been historically, which has led to higher per unit costs. In some key product categories, changes in our customers’ behavior have led to slower purchasing rates which have contributed to the higher inventory levels. This excess inventory does not spoil or turn obsolete. The Company remains committed to selling this inventory as we rework these specific distribution channels but we expect this to take some time.

The Company’s inventory position as of the end of the third quarter fell by $2.5 million from the end of the second quarter, and $4.0 million from its peak in January. This drawdown of our inventory has not affected our ability to fulfill the orders for our highest volume products in a timely manner, but has reduced our position in bulkier items which were delayed due the worldwide supply chain issues that occurred at the end of the COVID-19 pandemic and arrived too late for our busy Spring and Summer selling season last year. As of the end of the third quarter, the Company had over $1.5M less in-transit and prepaid inventory than the previous year allowing us to further drawdown our inventory. We are now at our desired inventory levels for many of our high volume products and expect to resume purchasing these in Q4 to continue to fulfill demand. In addition, the change in our fencing distribution agreement with a major customer as discussed above is requiring us to maintain a higher level of lumber inventory than we have previously. This ensures the availability of these products for the customer and optimizes our sales. This change will contribute to higher inventory figures in future periods.

Gross margin for the current nine-month period was 23.2%, which is similar to the 23.5% gross margin in the prior year’s nine-months. We continue to work off our higher priced inventory acquired when freight costs were at their highest. As this inventory is replaced, our costs of goods will decline. Inflation is also showing signs of moderating from the tremendously high levels that occurred in calendar 2022 and into 2023. This should further allow our selling prices to catch up to our costs.

In fiscal 2021, we filed for arbitration against one of our former distributors asserting a breach of the distribution agreement. The arbitration hearing was held in December 2022. In February 2023, the arbitrator issued its decision in favor of the Company on all of our claims. We are seeking damages of lost margins and our legal costs. The monetary award is pending, and a hearing date regarding the award of damages has been set for early August. The amount of any recovery is currently uncertain. Our costs to pursue this action have been sizeable, particularly during the current nine-month period. Regardless of the ultimate recovery in this case, Jewett-Cameron will continue to vigorously defend its patents, trademarks and contractual agreements.

In May, the Company’s Board of Director’s approved the adoption of an Advance Notice Policy for the nominations of directors by the Company’s shareholders. The Policy provides shareholders, directors and management with a precise framework for advance notice of nominations of directors by its shareholders. Among other things, the Advance Notice Policy fixes a deadline by which shareholders must submit nominations to the Company before any annual or special meeting of the shareholders, and sets forth the minimum information that a shareholder must include in such notice. The Advance Notice Policy is effective immediately, and the Company's common shareholders will be asked to approve the Advance Notice Policy at the next meeting of shareholders which is expected to be held in early calendar 2024.

September 2023 will mark Jewett-Cameron’s 70th year in business. We are pleased with the results we have achieved in operational improvements from the investments we have made in all facets of the business over the last several years. This badly needed modernization of the Company and our processes have positioned us well for future growth. We will continue to streamline the business, focus on our strengths and core product lines, and deploy our capital efficiently. Recently, our bank lender U.S. Bank increased our available credit line to $12 million while we reduced our current draw on the line to $8 million, which is down from its peak of $9.5 million from early in the third quarter. We are continuing to discuss the possibility of restructuring the existing line into different credit arrangements which would potentially provide the Company with greater financial flexibility.

### Three Months Ended May 31, 2023 and May 31, 2022

For the three months ended May 31, 2023, sales totaled $18,945,738 compared to sales of $20,922,190 for the three months ended May 31, 2022, which is a decrease of $1,976,452, or 9%.

Sales at JCC were $17,158,549 compared to sales of $19,775,597 for the quarter ended May 31, 2022, a decrease of $2,617,048, or 13%. Sales in the current quarter were negatively affected the historically cold and wet wintry weather across the United States which extended into April. This caused many of our customers, including the big box retailers, to delay their Spring and Summer product orders as well as reducing the size of their orders to reflect the shortened warm weather season. Operating profit for JCC for the quarter ended May 31, 2023 was $977,922 compared to income of $2,068,910 for the quarter ended May 31, 2022.

Sales at Greenwood for the quarter were $989,166 compared to sales of $570,592 for the three months ended May 31, 2022, which was an increase of $418,574, or 73%. Demand for Greenwood’s products transit operators is now recovering after the COVID-19 pandemic drastically reduced ridership and their budgets for these customers. As demand for Greenwood’s products has grown, the Company is working expand its trading activities by adding new traders. For the three months ended May 31, 2023, Greenwood had an operating profit of $25,460 compared to an operating loss of ($35,123) for the three months ended May 31, 2022.

Sales at JCSC were $798,023 compared to sales of $576,001 for the three months ended May 31, 2022. During the current quarter, management decided to close JCSC effective August 31, 2023. No new seed is being accepted for cleaning, and existing inventory is being sold to be able to complete the closure of JCSC no later than December 31, 2023. For the quarter ended May 31, 2023, JCSC had a loss from operations of ($46,719) compared to an operating loss of ($116,639) for the quarter ended May 31, 2022.

JC USA is the holding company for the wholly-owned operating subsidiaries. For the quarter ended May 31, 2023, JC USA had operating income of $141,450 compared to operating income of $55,428 for the quarter ended May 31, 2022. The results of JC USA are eliminated on consolidation.

Gross margin for the three months ended May 31, 2023 was 23.3% compared to 25.6% for the three months ended May 31, 2022. Higher cost inventory acquired during the period of worldwide supply chain disruptions are being worked off in the current quarter and have pressured our margins.

Operating expenses for the three months ended May 31, 2023 were $3,162,353 a decrease of $170,813 from expenses of $3,333,166 in the three months ended May 31, 2022. A decrease of $164,126 in Selling, General and Administrative to $961,566 from $1,125,692 was the primary reason for the decline. Wages and Employee Benefits declined slightly to $2,100,825 from $2,124,183, and Depreciation rose to $99,962 from $83,291 as the Company added new facilities and equipment. Other income was $Nil compared to $903, and interest expense related to the amounts borrowed on its bank line of credit was $152,905 compared to $47,973 due to a higher balance borrowed and a higher interest rate during the current quarter.

Income tax expense for the three months ended May 31, 2023 was $363,163 compared to $478,464 for the three-month period ended May 31, 2022. 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.

Net income of the quarter ended May 31, 2023 was $734,951, or $0.21 per basic and diluted share, compared to net income of $1,494,111, or $0.43 per basic and diluted share, for the quarter ended May 31, 2022.

### Nine Months Ended May 31, 2023 and May 31, 2022

For the nine months ended May 31, 2023, sales totaled $39,666,658 compared to sales of $47,900,665 for the nine months ended May 31, 2022. This represents a decrease of $8,234,007, or 17%.

Sales at JCC were $36,029,439 for the nine months ended May 31, 2023 compared to sales of $43,978,959 for the nine months ended May 31, 2022, which is a decrease of $7,949,520, or 18%. The historic cold and wet weather which covered most of the United States into April caused many of our customers to delay, and likely reduce, their planned Spring and Summer orders. Sales during the current nine months were also negatively affected by some outside issues with certain products at both the supplier and customer level which were fully resolved during the third quarter. For the current nine-month period, JCC had an operating loss of ($594,192) compared to operating income of $1,499,054 for the nine months ended May 31, 2022. 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.

Sales at Greenwood were $1,928,765 compared to sales of $1,690,262 for the nine months ended May 31, 2022. This represents an increase of $238,503, or 14%. Greenwood’s primary customers are governments and transit operators which have recently seen a rise in ridership, and budgets, post-COVID 19. As a result, orders from these customers have recently increased. Management continues its work to grow Greenwood by recruiting new brokers to add new customers not only within the transportation industry, but also those in other industries that Greenwood has traditionally not targeted, such as the housing and construction sectors. For the nine months ended May 31, 2023, Greenwood had an operating loss of ($80,097) compared to an operating profit of $8,823 for the nine months ended May 31, 2022.

Sales at JCSC for the nine months ended May 31, 2023 were $1,708,454 compared to sales of $2,231,444 for the nine months ended May 31, 2022, which was a decrease of $522,990, or 23%. The extended cold and wet weather that most of the United States experienced into April 2023 depressed prices and demand for both grass seed and red clover as it pushed back the traditional planting season. During the current period, management decided to close JCSC effective August 31, 2023. No new seed is being accepted for cleaning, and existing inventory is being sold to be able to complete the closure of JCSC no later than December 31, 2023. For the nine-month period ended May 31, 2023, JCSC had an operating loss of ($58,048) compared to an operating loss of ($238,387) for the nine months ended May 31, 2022.

JC USA, the holding company that provides professional and administrative services for the wholly-owned operating subsidiaries had operating income of $412,394 compared to income of $586,749 for the nine months ended May 31, 2022. The results of JC USA are eliminated on consolidation.

Gross margin for the nine-month period ended May 31, 2023 was 23.2% compared to 23.5% for the nine months ended May 31, 2022. Although raw material, energy, and transportation costs have begun to moderate, they remain higher in the current period than experienced during fiscal 2022. The Company is also continuing to draw down its higher cost inventory that was acquired during the period of worldwide supply chain disruptions.

Operating expenses rose slightly to $9,159,478 from expenses of $8,992,696 recorded for the nine months ended May 31, 2022. Selling, General and Administrative expenses increased to $2,884,463 from $2,798,094. Higher spending on Professional Fees, including attorney’s fees related to the Company’s recent arbitration victory against a former distributor, was an important contributor to the increase in the current nine-month period. Wages and Employee Benefits was relatively flat at $5,975,438 compared to $5,957,601. Depreciation and amortization rose to $299,577 from $237,001 as new facilities and equipment has been added.

Interest expense related to the Company’s bank line of credit during the current nine-months was $353,987 compared to $98,868 for the nine months ended May 31, 2022. The increase was due to a higher balanced borrowed and significantly higher interest rate. Other income in the prior nine-month period was 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.

Income tax recovery in the current nine-month period was $9,004 compared to income tax expense of $483,449 for the nine months ended May 31, 2022. The Company estimates income tax expense for the period based on combined federal and state rates that are currently in effect.

Net loss for the nine months ended May 31, 2023 was ($310,847), or ($0.09) per basic and diluted share, compared to net income of $1,372,789, or $0.39 per basic and diluted share, for the nine months ended May 31, 2022.

### LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2023, the Company had working capital of $18,535,156 compared to working capital of $19,207,874 as of August 31, 2022, a decrease of $672,718.

Cash and cash equivalents totaled $2,716,051, an increase of $2,231,588 from cash of $484,463. Accounts receivable, which is based on the timing of sales and collection of payments, rose to $7,530,135 from $7,191,646. Inventory declined to $20,529,230 from $20,632,313. Prepaid expenses, which is largely related to down payments for future inventory purchases, decreased by $242,427 to $870,148. Prepaid income taxes declined to $Nil from $208,963.

Current liabilities increased to $13,110,408 from $10,422,086. The Company drew a net $1,000,000 against its line of credit during the period which increased the amount borrowed to $8,000,000 from $7,000,000 as of August 31, 2022. Accounts payable rose by $1,064,998 to $2,631,045 from $1,566,047. Accrued liabilities increased to $2,332,148 from $1,856,039, and income taxes payable rose to $147,215 from $Nil.

As of May 31, 2023, accounts receivable and inventory represented 89% of current assets and 76% of total assets. As of May 31, 2022, accounts receivable and inventory represented 87% of current assets and 76% of total assets. Our accounts receivable balances have begun their usual seasonal decrease. Our customers continue to pay on-time, with almost all of our outstanding receivables classified as current. For the three months ended May 31, 2023, the accounts receivable collection period, or DSO, was 37 compared to 37 for the three months ended May 31, 2022. For the nine-month period ended May 31, 2022, the DSO was 52 compared to 49 for the nine months ended May 31, 2022. Inventory turnover for the three months ended May 31, 2023 was 138 days compared to 112 days for the three months ended May 31, 2022. For the nine months ended May 31, 2023, inventory turnover was 184 days compared to 126 days for the nine months ended May 31, 2022.

External sources of liquidity include a line of credit from U.S. Bank of $12,000,000, which includes a temporary increase of $2,000,000 from the existing $10,000,000. This temporary bulge is in effect through August 31, 2023. As of May 31, 2023, the Company had a borrowing balance of $8,000,000, leaving $4,000,000 available. Subsequent to the end of the period, the Company repaid an additional $1,000,000, leaving a balance borrowed of $7,000,000 and $5,000,000 currently available. 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 May 31, 2023 was 6.65% (5.08% + 1.57%). The line of credit has certain financial covenants. The temporary increase in the available borrowing under the line of credit includes additional financial covenants, which is customary for these types of loans. These covenants require the Company to maintain certain leverage ratios of borrowed funds to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA). The Company is currently in compliance with these covenants.

Management is continuing to explore the restructuring of its borrowing agreements. These changes would potentially provide the Company with additional borrowing power and greater financial flexibility, but may include additional financial covenants which the Company would be required to maintain. No new agreement has been reached, and there is no guarantee that there will be any additional changes to the Company’s borrowing arrangements.

During the period, the Company issued 3,557 common shares to officers, directors and employees as compensation under the Company’s Restricted Share Plan at a deemed average price of $6.55 per share for a total cost of $23,303.

### 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 2023.

### OTHER MATTERS

### Inflation

Historically, inflation has not been a significant issue for the Company. However, beginning in fiscal 2021, a number of product costs increased substantially, including raw materials, energy, and transportation/logistical related costs.

These higher costs have negatively affected the Company’s gross margins. 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 in fiscal 2023.

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 Bank Line of Credit. The interest rate paid by the Company has increased from 1.83% as of November 30, 2021 to 6.65% as of May 31, 2023.

### 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 metal 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 either recycled or non-petroleum-based plastics to enhance recycling and composting. This includes the recently introduced compostable dog waste bag made from corn starch and other natural, renewable resources, that is less reliant on fossil fuels used in traditional plastic bags. We also dedicate a percentage of sales to support environmental cleanup efforts.

#### 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, including sponsorships, fundraising, and volunteer events, which is supported by a Corporate Charitable Giving Charter.

#### 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. An IT Governance Committee aligns execution and security both for 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.

### 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.

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 4,200 shares for the nine months ended May 31, 2023. 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 inability of our third-party manufacturers in China and elsewhere to manufacture or deliver products to us in a timely manner, if it all.

Isolation requirements may prevent our employees from being able to report to work or being required to work from home or other off-site location which may prevent us from accomplishing certain functions, including receiving products from our suppliers and fulfilling orders for our customers, which may result in an inability to meet our obligations.

Our new products may be delayed or require unexpected changes to be made to our new or existing products.

The effect of the outbreak on the economy may be severe, including an economic downturn and decrease in employment levels which could result in a decrease in consumer demand for our products.

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, 2023, our top ten customers represented 87% of our total sales. We would experience a significant decrease in sales and profitability and would have to cut back our operations, if these customers were lost and could not be replaced. Our top ten customers are located in North America and are primarily in the retail home improvement and pet industries.

***We could experience delays in the delivery of our products to our customers causing us to lose business.***

We purchase our products from other vendors and a delay in shipment from these vendors to us could cause significant delays in our delivery to our customers. This could result in a decrease in sales orders to us and we would experience a loss in profitability.

***Governmental actions, such as tariffs, and/or foreign policy actions could adversely and unexpectedly impact our business.***

Since the bulk of our products are supplied from other countries, political actions by either our trading country or our own domestic policy could impact both availability and cost of our products. Currently, we see this in regard to tariffs being levied on foreign sourced products entering into the United States, including from China. The continuing tariffs by the United States on certain Chinese goods include some of our products 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.

***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 $12,000,000, of which $4,000,000 is currently available. We are currently in compliance with the requirements of our existing line of credit. However, with the recent temporary increase in the amount of the line of credit, our lender has instituted additional financial covenants. If we are unable to meet these financial conditions, the lender may reduce, or withdraw, our access to this line of credit and require repayment of a portion or all outstanding amounts. We may not be able to replace this credit on a timely basis or under favorable terms, if at all. If we lost access to this credit it would have a negative effect on our business and financial condition.

***Our information technology systems are susceptible to certain risks, including cyber security breaches, which could adversely impact our operations and financial condition.***

Our operations involve information technology systems that process, transmit and store information about our suppliers, customers, employees, and financial information. These systems face threats including telecommunication failures, natural disasters, and cyber security threats, including computer viruses, unauthorized access to our systems, and other security issues. While we have taken aggressive steps to implement security measures to protect our systems and initiated an ongoing training program to address many of the primary causes of cyber threat with all our employees, such threats change and morph almost daily. There is no guarantee our actions will secure our information systems against all threats and vulnerabilities. The compromise or failure of our information systems could have a negative effect on our business, results of operations, or financial condition.

***If we fail to maintain an effective system of internal controls, we may not be able to detect fraud or report our financial results accurately, which could harm our business and we could be subject to regulatory scrutiny.***

We have completed a management assessment of internal controls as prescribed by Section 404 of the Sarbanes-Oxley Act, which we were required to do in connection with our year ended August 31, 2022. Based on this process we did not identify any material weaknesses. Although we believe our internal controls are operating effectively, we cannot guarantee that in the future we will not identify any material weaknesses in connection with this ongoing process.

## Market risk

As filed, 1,217 characters.

### Interest Rate Risk

The Company does not have any derivative financial instruments as of May 31, 2023. 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 interest rate paid by the Company on its Bank Line of Credit has increased from 1.83% as of November 30, 2021 to 6.65% as of May 31, 2023.

### 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.

## Controls and procedures

As filed, 1,299 characters.

### 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 have 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.

Filed Jul 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001079973-23-000950. Last ingested by Listed: Nov 6, 2026, 19:06 ET. No prices; not investment advice.