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
adjustments, consisting only of normal recurring adjustments, necessary to
fairly state its financial position as of
and its results of operations and cash flows for the three month periods ended
the three month period ended
the results that may be experienced for the fiscal year ending
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
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
Company
distributor of specialty metal products. JCC operates out of a 5.6 acre owned
facility located in
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
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
Seed Company
this segment’s sales come from selling seed to distributors with a lesser amount
of sales derived from cleaning seed.
as described above.
including warehousing, accounting and credit services, to its subsidiary
companies.
Tariffs
The Company’s metal products are manufactured in
United States
instituted new tariffs on the importation of a number of products into
United States
response to what the USTR considers to be certain unfair trade practices by
subject to duties of 25% when imported into
These new tariffs were temporarily reduced on many of the Company’s imported
products in
rate was restored on the Company’s products in
expired.
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RESULTS OF OPERATIONS
Demand for our products remained strong in Q1 of fiscal 2022, as sales were up
25% over Q1 of fiscal 2021. However, our cost of goods sold increased by 42% due
to significantly higher costs throughout the supply chain as issues experienced
in the second half of fiscal 2021 continued in the first quarter of fiscal 2022.
Additional supply chain interruptions occurred within
related issues and restricted electrical supplies to certain manufacturers.
These issues resulted in inconsistent shipments of products from
the quarter. On a dollar basis, our inventory is unusually high for the season
due to a large amount of product in transit. Seaborne shipping times and costs
remain at historic highs, and the time to receive products from
to be both uncertain and extended far beyond normal, with delays occurring all
along the supply chain. In order to alleviate some of these issues and have our
best-selling products in stock to continue to serve our customers on as much of
an uninterrupted basis as possible, the Company increased its ordering and
shipment of certain products prior to the annual holidays for
However, these extra orders and expedited shipment came with higher costs and
required higher cash outlays, which required additional borrowing under our bank
line of credit. We are also experiencing transportation and logistic issues
within
to customers and their ability to receive and sell through our products.
Other inflationary pressures also negatively affected results in the first
quarter. Higher raw material costs squeezed margins, and we were not able to
pass through these sudden cost increases to our customers as quickly as they
occurred. Entering the second quarter, we have now successfully implemented
higher selling prices with our customers which are expected to begin to relieve
some margin pressure. Lumber prices also reached historic highs during calendar
2021, which drove our inventory costs much higher than usual, but we are well
prepared to meet expected lumber demand entering calendar 2022.
The launch of several important new products planned for the second half of
calendar 2021 were delayed due to the supply chain issues. These included new
pet products which were originally scheduled to roll-out in time for “Black
Friday” and the important holiday shopping season. Other scheduled product
introductions for 2022 calendar year have been pushed out to accommodate the
supply chain issues and ensure receipt of inventory to support successful
launches.
We are pleased with the results of our current sales and marketing strategy. The
rebranding of our products has highlighted our brand names and increased
consumer awareness of our consistent look and statement of value. We intend to
continue to develop new products, particularly those that complement and expand
our existing product lines, and we may also seek to acquire products that
conform to this strategy. We will also continue our efforts to expand both new
and existing sales channels which will broaden our product distribution and grow
our connections with the end consumer.
We have also continued to invest in our facilities, equipment, and personnel.
The final phases of our 4 planned capital improvement and expansion projects
are on schedule for completion by the end of
significantly increased and improved functionality of our office space.
Additional employees have been added to support our continued growth to ensure
quality customer engagement as well as drive enhanced awareness and marketing
programs. The website continues to improve in line with our omnichannel
commitment offering enhanced accessibility functionality and modernized investor
relations and contact sections. Additionally, we have implemented easier
navigation of our increased product selection displayed with a more unified
brand presentation within a new eCommerce interface.
The transition of our senior management roles as announced in
on
role as CEO to his overall strategy positions as a Director and Board Chair.
addition to his prior position as President, and
been appointed as Chief Financial Officer.
President in
ventures in both product and service industries and has a strong background in
leadership, consulting, and support. He co-owned and led an international lumber
brokering business similar to Jewett-Cameron’s Greenwood division. This
experience provided him the opportunity to oversee and actively manage suppliers
in
dedicated to growing manufacturers in association with a west coast regional
accounting firm which allowed him the opportunity to establish a deep network of
manufacturers, professional services and support connections regionally.
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financial reporting for both public and private companies. Prior to joining
Jewett-Cameron, he served as Controller for national beverage brand where he
managed the financial processes and full-cycle accounting for the company and
its nine brewpub locations. From 2007 to 2012 worked in public accounting at a
large regional public accounting firm in
public and private companies. From 2005 to 2007, he served as a Sarbanes-Oxley
(SOX) compliance consultant for
testing their compliance in both US and International regions. He holds a
bachelor’s degree in Business Administration from
He is a licensed CPA in the
Society of CPA’s
In response to the COVID-19 pandemic, the
of its mask and social distancing requirements in
response to the surge in COVID-19 infections, indoor masking requirements for
businesses were reinstituted in
will remain vigilant in regard to the COVID virus and its variants. It is
critical to our continuing operations that we do all we can to protect and
retain our workforce if and when they might experience exposure to the virus. If
any employees working at headquarters or in the warehouse facilities contract
the virus, the Company would be forced to curtail those operations, including
product shipments, for the required period to thoroughly clean and sanitize the
facility without human exposure, which would result in delayed or lost revenue,
and increased costs. To date, we have not had any incidents of transmissions
within the confines of our facilities due to our clear and consistent protocols
during the restrictive period, as well as our employees’ remarkable support of
our procedures which has been critical to our success in keeping our workplace
safe and running. This has directly led to our ability to retain our workforce
through these challenging times as well as create an environment in which people
feel safe. The assistance of the PPP program provided us the ability to assist
sound employee decisions when they either felt they had an external exposure or
perhaps even tested positive due to such external exposure. The loans the
Company received under the Paycheck Protection Program were essential in
supporting the Company’s ability to operate without interruption during the
crisis and retain 100% of its workforce. All of the borrowed funds were spent on
qualifying employee payroll expenses, and the Company’s loans were fully
forgiven by the SBA in
The outlook for the remainder of fiscal 2022 remains uncertain. The ongoing
supply chain, international shipping and logistic issues are hampering the
receipt of our products from
increased our inventory levels to try to mitigate these risks and any additional
risks from the worldwide emerging Omicron variant of COVID. However, this
inventory increase has resulted in higher costs which will continue to
negatively impact our margins in fiscal 2022. Although we have now negotiated
higher selling prices with our customers, inflation, particularly in the form of
higher raw material costs combined with higher shipping costs, will continue to
pressure our margins. These selling price increases for our products may
continue to lag any future increases in our product and operating costs, as they
did during the first quarter, which may further compress our margins.
Three Months Ended
For the three months ended
25%, to
2020
shipping costs.
Sales at JCC were
compared to sales of
which was an increase of
were negatively affected by temporary shortages of certain products due to
manufacturing issues in
launch of several new product introductions for 2022 calendar year have been
pushed out to accommodate the supply chain issues and ensure receipt of
inventory to support successful launches. Operating loss for JCC was (
compared to an operating profit of
2020
quarters of the fiscal year historically being slower than the final two
quarters of the fiscal year.
Sales at Greenwood were
compared to sales of
which was a decrease of
impacted by the COVID-19 shutdowns, as many of their products are sold to
municipalities and larger transit operators. Greenwood is currently introducing
new products to both existing and new customers. Management is also actively
seeking new brokers to both open new sales channels and broaden its customer
base, particularly in the housing and construction sectors. For the quarter,
Greenwood’s operating income was
(
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Sales at JCSC declined to
compared to sales of
Management continues to refocus JCSC to better provide local growers with
cleaning, seed brokering and sales services. However, the historic heat wave
across the
reduced harvested yields, which resulted in lower cleaning volumes in the
current quarter. Operating loss for JCSC for the quarter was (
to operating income of
the quarter ended
compared to operating income of
The results of
Gross margin for the three month period ended
compared to 28.7% for the three months ended
material and shipping costs resulted in significantly higher costs during the
current quarter.
Operating expenses rose by
months ended
increased to
and Amortization increased to
decreased to a cost of (
of (
The loss before income taxes was (
2021
Company recorded income tax recovery in the current quarter of
to income tax expense of
The Company estimates income tax expense for the quarter based on combined
federal and state rates that are currently in effect. The net loss for the
quarter ended
to net income for the quarter ended
share.
LIQUIDITY AND CAPITAL RESOURCES
As of
to working capital of
Cash and cash equivalents totaled
of
seasonal cycle of sales to customers and the related timing of cash receipts.
Inventory increased by
supply chain issues delayed the delivery of products from
expenses, which is largely related to down payments for future inventory
purchases, decreased by
liability increased slightly to
Current liabilities increased to
increase due to the additional draw of
of credit to
2021
liabilities declined slightly to
As of
current assets and 74% of total assets. As of
receivable and inventory represented 67% of current assets and 58% of total
assets. For the three months ended
collection period, or DSO, was 42 days compared to 37 days for the three months
ended
30, 2021
30, 2020
External sources of liquidity include a line of credit from
assignment of accounts receivable and inventory. The interest rate is
calculated solely on the one month LIBOR rate plus 175 basis points. As of
(0.08% + 1.75%). With the expected phase-out of LIBOR, the Company expects the
calculated rate on the line of credit will be changed to another published
reference standard before the planned cessation of LIBOR quotations in 2022.
However, the Company does not anticipate this change will have any significant
effect on the terms and conditions, and ability to access, the line of credit,
or on its financial condition. The line of credit has certain financial
covenants. The Company is in compliance with these covenants.
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During the 3rd quarter of fiscal 2020, the Company applied for and received two
loans under the Paycheck Protection Program (the “PPP”) as part of the
Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)
administered by the
believed the PPP funds were necessary because the Company was quickly depleting
its available cash in April due to inventory purchases to fulfil customer orders
ahead of its busiest selling season, some delays in receiving inventory from
COVID-19 infections. If any of the Company’s employees on site were to contract
the virus during this time, the Company would have been required to shut down
the facility for a minimum of 14 days to clean and disinfect, and no product
would be shipped to customers. Without the cash flow from product sales, the
Company would have likely had to immediately layoff or furlough many of its
employees, which would further delay the Company’s ability to recover after the
shutdown. All of the proceeds from the PPP loans were used for employee payroll
expenses.
The principal amount of the PPP loans was
with a 1% annual interest rate. Payments were originally deferred for 6 months,
after which the repayment of principal and interest is required to be made in
equal monthly payments over 18 months beginning
SBA subsequently revised the due date to either the date that SBA remits the
borrower’s loan forgiveness amount to the lender or, if the borrower does not
apply for loan forgiveness, 10 months after the end of the borrower’s loan
forgiveness covered period. In
application for forgiveness of the entire amount of both loans. For the year
ended
of debt of
of
The Company has historically used a portion of its excess cash to repurchase and
cancel common shares. No common shares were repurchased during the first quarter
of fiscal 2022 ended
3,681 common shares to officers, directors and employees as compensation under
the Company’s Restricted Share Plan at a deemed price of
Current Working Capital Requirements
Based on the Company’s current working capital position, the continued global
shipping and logistical issues, and the utilization of its current line of
credit, the Company may require additional working capital to meet its needs for
fiscal 2022. Management recently increased its line of credit to
which
combined with the expected timing of accounts receivable is expected to be
sufficient to meet the Company’s working capital requirements in fiscal 2022.
OTHER MATTERS Inflation
Inflation did not have a material impact during fiscal 2020. Beginning in fiscal
2021, a number of product costs increased substantially, including raw
materials, energy, and transportation/logistical related costs.
These higher costs have negatively affected the Company’s gross margins in the
shorter term. Typically, the Company passes cost increases on to the customer,
and is currently raising its product prices as much as the market will bear.
Retailers are currently more receptive to such increases than in the past due to
a mutual understanding of the current inflationary environment and the objective
reasons for such. Since the ability of the Company to pass through all of the
current increase in its product costs to its customers are somewhat limited and
occur after such costs are first incurred, management expects that its gross
margins will remain under pressure in fiscal 2022.
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: sustainability.
Environmental
For our products, the goal is that 90% of materials can be recycled. Our
suppliers are audited to strict commercial and fair practice standards,
including our own supplier qualifications regarding facilities, capacity, labor
practices, and environmental awareness. Packaging is designed to maximize
recyclability and re-use and minimize non-recycled materials, and all waste
materials in our own facilities are segregated to maximize recycling. Our
facilities have replaced high energy consumption infrastructure with energy
efficient HVAC and lighting during our recent remodel.
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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, a plant-based product, that is less
reliant on fossil fuels used in traditional plastic bags. We also dedicate a
percentage of sales to a sustainability coalition to drive industry research and
development into more environmentally conscious products and raw material
science.
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
to connect traditional school subjects to practical job site applications. The
Company also actively participates in the local community, supported by a
Corporate Charitable Giving Charter.
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.
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,” “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
NASDAQ was 4,030 shares for the three months ended
limited trading volume, investors could find it difficult to purchase or sell
our common stock.
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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
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 three months ended
75% 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
America
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
States
certain Chinese goods include some of our products which we purchase from
suppliers in
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
of our existing line of credit. If we lost access to this credit it could
become impossible to pay some of our creditors on a timely basis.
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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
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.
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