JEWETT CAMERON TRADING CO LTD - Annual Report: 2022 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

———————

FORM 10-K

For the fiscal year ended: August 31, 2022

OR

For the transition period from ____ to ____

Commission file number: 000-19954

JEWETT-CAMERON TRADING CO LTD

(Exact name of Registrant as Specified in Its Charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐  No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐  No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes þ  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐  No ☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:

February 28, 2022 = $24,954,072

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of November 21, 2022: 3,495,342

Jewett-Cameron Trading Company Ltd.

Form 10-K Annual Report

Fiscal Year Ended August 31, 2022

TABLE OF CONTENTS

PART I

Item 1. Business.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words like “plans”, “expects”, “aims”, “believes”, “projects”, “anticipates”, “intends”, “estimates”, “will”, “should”, “could” and similar expressions in connection with any discussion, expectation, or projection of future operating or financial performance, events or trends. Forward-looking statements are based on management's current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions due to changes in global political, economic, business, competitive, market, regulatory and other factors. We undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future developments or otherwise.

These factors include, but are not limited to the fact that the Company is in a highly competitive business and may seek additional financing to expand its business, and are set forth in more detail elsewhere in this Annual Report, including in the sections, ITEM 1A, “Risk Factors”, and ITEM 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations”.

Introduction

Jewett-Cameron Trading Company Ltd. is organized under the laws of British Columbia, Canada. In this Annual Report, the “Company”, “we”, “our” and “us” refer to Jewett-Cameron Trading Company Ltd. and its subsidiaries.

The Company’s operations are classified into three reportable operating segments, one discontinued segment (Industrial Tools) 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:

Effective September 1, 2013, the Company reorganized certain of its subsidiaries. Jewett-Cameron Lumber Corporation (“JCLC”) was changed to JC USA Inc. (“JC USA”), which has the following three wholly-owned subsidiaries.

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 to the transportation industry.

The pet, fencing and other segments reflect the business of the Jewett-Cameron Company (“JCC”). JCC is a wholesaler of products based in these categories. Pet products range from enclosures/kennels of varying types and construction primarily out of metal, to items that support the pet “home” such as beds, bowls and compostable dog waste bags. Fencing and containment products include such products as proprietary gate and fencing components, including trademarked and patented post systems, wood and other fencing infill products, as well as kitted security fencing solutions. Other products include garden, landscaping and miscellaneous products for the home. JCC uses contract manufacturers to make all products. Some of the products that JCC distributes flow through the Company’s distribution center located in North Plains, Oregon, and some are shipped direct to the customer from the manufacturer. Primary customers are home centers, eCommerce providers, other retailers, and direct sales to consumers.

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 also formerly operated in the industrial tools and clamps segment through MSI-PRO (“MSI”). MSI imported and distributed products including pneumatic air tools, industrial clamps, and saw blades. These products were primarily sold to wholesalers that in turn sold to contractors and end users. During fiscal 2020, the Company decided to exit this segment. The remaining inventory was liquidated, and MSI was wound-up and closed.

JC USA provides professional and administrative services, including accounting and credit services, to each of its wholly-owned subsidiary companies.

Total Company sales were approximately $62.9 million and $57.5 million during fiscal years ended August 31, 2022 and 2021, respectively.

The Company's principal office is located at 32275 NW Hillcrest Street, North Plains, Oregon; and the Company’s website address is www.jewettcameron.com. The Company’s primary mailing address is P.O. Box 1010, North Plains, OR 97133. The Company’s phone number is (503) 647-0110, and the fax number is (503) 647-2272.

The Company files reports and other information with the Securities and Exchange Commission located at 100 F Street NE, Washington, D.C. 20549. Copies of these filings may be accessed through their website at www.sec.gov. Reports are also filed under Canadian regulatory requirements on SEDAR, and these reports may be accessed at www.sedar.com.

The contact person for the Company is Chad Summers, President and CEO.

The Company’s authorized capital includes 21,567,564 common shares without par value; and 10,000,000 preferred shares without par value. As of August 31, 2022 and November 21, 2022, there were 3,495,342 common shares outstanding. The Company's common shares are listed on the NASDAQ Capital Market in the United States with the symbol “JCTCF”.

The Company's fiscal year ends on August 31st.

General Development of Business

Incorporation and Subsidiaries

Jewett-Cameron Trading Company Ltd. was incorporated under the Company Act of British Columbia on July 8, 1987 as a holding company for Jewett-Cameron Lumber Corporation (“JCLC”), which was incorporated in September 1953 in Oregon, USA. Jewett-Cameron Trading Company, Ltd. acquired all the shares of JCLC through a stock-for-stock exchange on July 13, 1987, and at that time JCLC became a wholly owned subsidiary. Effective September 1, 2013, the Company completed a reorganization of certain of its subsidiaries and JCLC’s name was changed to JC USA Inc. (“JC USA”). JC USA has the following wholly owned subsidiaries. MSI-PRO Co. (“MSI”), incorporated in April 1996 and dissolved in September 2019, Jewett-Cameron Seed Company, (“JCSC”), incorporated in October 2000, Greenwood Products, Inc. (“Greenwood”), incorporated in February 2002, and Jewett-Cameron Company (“JCC”) incorporated in September 2013. Jewett-Cameron Trading Company, Ltd. and its subsidiaries have no significant assets in Canada.

Corporate Development

Incorporated in 1953, JC USA operated as a small lumber wholesaler based in Portland, Oregon. In September 1984, the original stockholders sold their interest in the corporation to a new group of investors. Two members of that group remained active in the Company. These individuals are Donald Boone, who passed away in May, 2019, and who was the previous Chairman and Director and the former President, Chief Executive Officer, Treasurer, and Principal Financial Officer, transitioning to strictly the Board Chair in 2017; and Michael Nasser, who remains active in the business and is both a Director and the Corporate Secretary.

In July 1987, the Company acquired JC USA in what was not an arms-length transaction.

In early 1986, prior to JC USA being acquired by the Company, JC USA acquired Material Supply International (“Material Supply”). Material Supply was engaged in the importation and distribution of pneumatic air tools and industrial clamps. The product line was re-branded as “MSI-PRO” and MSI was incorporated in 1996 to carry-on the business of Material Supply.

In October 2000, JCSC was incorporated in anticipation of JC USA acquiring the business and certain assets of a firm called Agrobiotech Inc. JCSC operates as a seed storage, processing and sales business.

In February 2002, Greenwood was incorporated in anticipation of JC USA acquiring the business and certain assets of Greenwood Forest Products Inc. Greenwood is involved in the processing and distribution of specialty wood products.

In June 2012, the Company acquired land and fixed assets located in Manning, Oregon for $250,000 cash. The property was sold in an arms-length transaction in the second quarter of fiscal 2019 for $325,000 cash.

In May 2019 Chairman and Co-Founder of the Company Donald M. Boone passed away. Mr. Boone served as President and CEO from 1984 until 2017 when he voluntarily retired from his officer positions and oversaw the addition and successful integration of new management and directors.

In September 2019 the Board of Directors decided to permanently close the Company’s MSI-Pro division. Efforts to drive further sales and margin growth were unsuccessful due to a lack of market differentiation and changing customer patterns. The remaining inventory was liquidated and the personnel were moved into different positions with the Company. As of August 31, 2020, MSI was wound-up and the division closed.

Narrative Description of Business

The Company’s operations are classified into four segments: Industrial wood products; Pet, Fencing and Other; Seed processing and sales; and corporate and administration. Sales, income before taxes, assets, depreciation and amortization, capital expenditures, and interest expense by segment are shown in the financial statements under Note 12 “Segment Information”.

Pet, Fencing and Other – JCC

The pet, fencing and other segments reflect the business of Jewett-Cameron Company (JCC), which is a manufacturer and distributor of specialty products and a wholesaler of products formerly conducted by JCLC.

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 home improvement business is seasonal, with higher levels of sales occurring between February and August. Inventory buildup occurs until the start of the season in February and then gradually declines to seasonal low levels at the end of the summer.

JCC has concentrated on building a customer base for lawn, garden, and pet related products. Management believes this market is less sensitive to downturns in the U.S. economy than is the market for new home construction as its products serve both new and existing home and pet owners.

The wood products that JCC distributes are not unique and are available from multiple suppliers. However, the metal products that JCC manufactures and distributes may be somewhat differentiated from similar products available from other suppliers. The company has been successful garnering key patents and trademarks on multiple products that assist their ability to continue to differentiate based on design and functionality.

JCC owns the patents and manufacturing rights connected with the Adjust-A-Gate™ and Fit-Right™ products, which are the gate support systems for wood, vinyl, chain link, and composite fences. Management believes the ownership of these patents results in an important competitive advantage for these and certain other products. During fiscal 2022, the Company applied for one patent (fiscal 2021 – Nil) and received no patents (2021 – Nil). A patent granted in 2018 was an update of the Adjust-a-Gate™, which will extend the protection on the Adjust-a-Gate™ products for an additional 15 years.

Backlog orders are a factor in this business as customers may place firm priced orders for products for shipments to take place three to four months in the future.

Industrial Wood Products - Greenwood

Greenwood is a wholesale distributor of a variety of specialty wood products. Operations are co-located in the building utilized by JCC.

Historically, a major product category has been treated plywood that was sold into the marine industry. It migrated from that segment and focused more into the transportation industry. In February 2014, due to the falling marine market, the Company sold its remaining and excess inventory related to the marine industry. Greenwood’s total sales for fiscal 2022 and 2021 were 4% and 5% respectively of total Company sales.

The primary market in which Greenwood competes has decreased in economic sensitivity as users are incorporating products into the municipal and mass transit transportations sectors. However, these markets may sustain some contractions due to COVID-19 related patterns of individuals utilizing transit and mass transit less due to concerns over exposure. In addition, this segment is prone to disruption of supply chain support which can impact other commodities outside of those specific to the disruption.

Inventory is maintained at non-owned warehouse and wood treating facilities throughout the United States and is primarily shipped to customers on a just-in-time basis. Inventory is generally not purchased on a speculative basis in anticipation of price changes.

Greenwood has no significant backlog of orders.

Seed Processing and Sales - JCSC

JCSC operates out of an approximately 12 acre owned facility located adjacent to North Plains, Oregon. 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. Sales of seed has seasonality, but it is most affected by weather patterns in multiple parts of the United States that utilize cyclical planting. The annual weather plays an important part in year-to-year sales volatility and specific crop demand. However, profitability around after the month of August may be higher based on a seasonal surge in cleaning sales, which are more profitable than product sales.

JCSC often has a backlog of sales orders based on placement of future contracts so that buyers can capture key commodity supplies for specific crops due to seasonal patterns.

Administrative Services – JC USA

JC USA Inc. is the parent company for the Company’s 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 and other products are largely 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.

Customer Concentration

The top ten customers were responsible for 84% and 81% of total Company sales for the years ended August 31, 2022 and August 31, 2021, respectively. Also, the Company’s single largest customer was responsible for 28% and 33% of total Company sales for the years ended August 31, 2022 and August 31, 2021 respectively.

Employees

As of August 31, 2022 the Company had 75 full-time employees (August 31, 2021 – 74 full-time employees). By segment these employees were located as follows: Greenwood 1, JCC 44, JCSC 11, and JC USA 19. None of these employees are represented by unions at the Company. Jewett-Cameron Trading Company Ltd. has no direct employees, and the CEO of the Company is employed by JC USA.

Item 1A. Risk Factors.

Investors should carefully consider the following risk factors and all other information contained in this Annual Report. There is a great deal of risk involved. In the business of the company, any of the following risks could affect our business, its financial condition, its potential profits or losses, and could result in you losing your entire investment if our business became insolvent. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, including those not presently known to us or that we currently deem immaterial, also may result in decreased revenues, increased expenses or other events which could result in a decline in the price of our common stock.

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.

The Company’s common shares currently trade within the NASDAQ Capital Market in the United States. The common shares also formerly traded on the Toronto Stock Exchange in Canada until the Company voluntarily delisted from the Toronto Stock Exchange on October 11, 2012. The average daily trading volume of our common stock was approximately 3,350 shares on NASDAQ for the fiscal year ended August 31, 2022. With this limited trading volume, investors could find it difficult to purchase or sell our common stock.

Risks Related to Our Business

A contagious disease outbreak, such as the recent COVID-19 pandemic emergency, could have an adverse effect on our operations and financial condition

Our business could be negatively affected by an outbreak of an infectious disease due to the consequences of the actions taken by companies and governments to contain and control the virus. These consequences include:

The financial impact of such an outbreak are outside our control and are not reasonable to estimate but may be significant. The costs associated with any outbreak may have an adverse impact on our operations and financial condition and not be fully recoverable or adequately covered by insurance.

We could experience a decrease in the demand for our products resulting in lower sales volumes.

In the past we have at times experienced decreasing products sales with certain customers. The reasons for this can be generally attributed to: increased competition; general economic conditions; demand for products; and consumer interest rates. If economic conditions deteriorate or if consumer preferences change, we could experience a significant decrease in profitability.

If our top customers were lost, we could experience lower sales volumes.

For the fiscal year ended August 31, 2022 our top ten customers represented 84% of our total sales, and our single largest customer was responsible for 28% 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 that 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 in turn 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 $10 million, of which $2.4 million is available. We are currently in compliance with the requirements of our existing line of credit. If we lost this credit it could become impossible to pay some of our creditors on a timely basis.

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

Our operations involve information technology systems that process, transmit and store information about our suppliers, customers, employees, and financial information. These systems face threats including telecommunication failures, natural disasters, and cyber security threats, including computer viruses, unauthorized access to our systems, and other security issues. While we have taken aggressive steps to implement security measures to protect our systems and initiated an ongoing training program to address many of the primary causes of cyber threat with all our employees, such threats change and morph almost daily. 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.

Item 1B. Unresolved Staff Comments.

--- No Disclosure Necessary ---

Item 2. Properties.

The Company’s executive offices are located at 32275 NW Hillcrest Street, North Plains, OR 97133. The 5.6 acre facility, which is owned, consists of 55,250 square feet of covered space (10,000 office and 47,250 warehouse), a little over three acres of paved yard space, and was originally completed in October 1995. A 12,000 square foot warehouse expansion was completed in fiscal 2017 which the Company is using for several new product lines. In fiscal 2021, the Company completed the conversion of 2,000 square feet of older warehouse space into 4,000 square feet of office and meeting space on two levels. The facility provides office space for JC USA, including all of the Company’s executive offices, and is used as a distribution center to service the Company’s customer base for JCC and Greenwood. During fiscal 2022, the Company leased an additional 4,700 square feet of warehouse space located in North Plains.

The property associated with JCSC, which is owned, consists of 11.7 acres of land, 105,000 square feet of buildings, rolling stock, and equipment. It is currently used for seed processing and storage. It is located at 31345 NW Beach Road, Hillsboro, OR 97124, which is adjacent to North Plains, OR.

During fiscal 2010, the Company purchased a 2,000 square foot building that previously housed a seed testing lab located at 31895 NW Hillcrest Street, North Plains, OR 97133. The Company formerly leased the property for $729 per month until the expiration of the lease on January 4, 2010. At that time, the Company exercised its option to buy the land and building for a total cost of $150,946. In fiscal 2020, the Company began a renovation of this building into its new innovation center which will focus on new product development for the Company’s subsidiaries. The renovation was completed during fiscal 2021.

Item 3. Legal Proceedings.

A consortium of California District Attorneys contacted the Company in regard to possible liabilities related to environmental labeling of its plant-based Lucky Dog Poop Bags previously sold in the State of California. The Company has since modified its product marketing statements in response to their concerns, and during the period ended May 31, 2022, accrued $300,000 in anticipation of a settlement. In June 2022, a settlement was finalized which requires the Company to pay the previously accrued $300,000 as a cash fine over a four-month period with no admission of guilt by the Company.

The Company was one of three named defendants in a Civil Action in Pennsylvania. The matter arises out of a dog allegedly escaping from a Jewett-Cameron kennel product and causing personal injuries to three individuals. The Company’s applicable liability insurer provided the defense covering the Company’s legal fees and costs. During the fiscal year ended August 31, 2022, the case was settled within the Company’s insurance policy limits with no admission of guilt by the Company, and there were no additional costs incurred.

The Company has initiated arbitration against a former distributor asserting a breach of the distribution agreement and seeking damages. Arbitration is tentatively scheduled to occur in December 2022. While the company is robustly pursuing its rights and defending itself against claims, the arbitration and lawsuit are in their initial stages and therefore it is speculative to predict as to its outcome.

Item 4. Mine Safety Disclosures.

--- No Disclosure Necessary ---

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common shares trade on the NASDAQ Capital Market (formerly the NASDAQ Small Cap Market) in the United States. The trading symbol for the common stock is “JCTCF” and the CUSIP number for the stock is 47733C-20-7. The common stock began trading on the NASDAQ Small Cap Market in April 1996.

The Company declared a two for one stock split of its common stock with a record date of the close of business on May 22, 2018. Shareholders received one additional common share for each common share held as of the record date. The stock split was effective as of May 29, 2018.

Table No. 1 lists the volume of trading along with the high, low, and closing sales prices on the NASDAQ Capital Market for the Company's common shares. Prices are adjusted to reflect the common stock split effective May 29, 2018.

Table No. 1

NASDAQ Capital Market

Common Shares Trading Activity

(US Dollars)

Holders

Computershare Investor Services Inc. which is located in Vancouver, British Columbia, Canada is the registrar and transfer agent for the common shares.

On October 11, 2022 there were 23 registered shareholders and 3,495,342 shares of the Company’s common shares outstanding.

Dividends

The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain earnings for use in its operations, expansion of its business, and the possible repurchase of Company shares. There are no restrictions that limit the ability of the Company to pay dividends on common equity or that are likely to do so in the future. Any dividends paid by the Company to U.S. shareholders would be subject to Canadian withholding tax.

Recent Sales of Securities: Use of Proceeds from Securities

The Company has sold no securities in the last 3 fiscal years.

Purchases of equity securities by the issuer and affiliated purchasers

The Company has not repurchased any common shares during the years ended August 31, 2022 or August 31, 2021.

Item 6. [Reserved].

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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:

Quarterly Results

The following table summarizes quarterly financial results in fiscal 2022 and fiscal 2021. (Figures are thousands of dollars except per share amounts).

RESULTS OF OPERATIONS

Fiscal 2022 was a difficult and unpredictable year. Although the challenges associated with the worldwide COVID pandemic began to fade, the recovery brought its own unique difficulties, both for the Company and our customers.

Sales for the year were $62,901,831, which was an increase of $5,400,288, or 9%, from sales of $57,501,543 in fiscal 2021. Our cost of sales, however, increased by $5,753,875, or 13%, which compressed our gross margins to 21.9% for the current year from 24.6% in fiscal 2021. These higher costs were due to large increases in raw material, energy, transportation, and freight costs during the year. We were especially affected by the soaring ocean freight costs caused by near-record high energy prices, port delays and shortages of vessels and shipping containers in the Pacific region. For example, our container shipping costs from China in the 4^th quarter of fiscal 2022 were over 60% higher than we paid in the 4^th quarter of fiscal 2021, and over 900% higher than we paid in fiscal 2020 and 2019. We also saw unprecedented increases in our shipping and delivery costs within the United States, and the time to both receive and deliver our goods also increased substantially.

Because of the increasing costs of shipping and uncertainty of the timing of receipt of orders from China, coupled with rising inflation, we decided at the end of the 2^nd quarter to build our on-site inventory, particularly in our highest volume items. This build began prior to the start of our traditionally busiest Spring and Summer sales season in our 3^rd and 4^th quarters of our fiscal year. It allowed us to mitigate the risks of shipping and supply chain disruptions and ship ahead of several announced price increases from both suppliers and shippers.

This higher level of inventory lowered some of our product costs while ensuring high product availability of our most popular products and on-time fulfillment during the 3^rd quarter. However, the supply issues on certain products which we experienced throughout the year worsened in the 4^th quarter and reduced our anticipated level of sales. We sold out of some products entirely and lost sales while waiting for additional units to arrive from China. Due to both supplier and shipping delays, some of our seasonal products arrived late and we missed the primary sales window. Those sales could not be recouped. Several new products, which we originally planned for release in fiscal 2021 but were pushed back into 2022 due to the effects of the pandemic in China, had a slower than expected roll-out as many of our customers were also experiencing inventory issues and curtailed their orders. Our customers’ inventory issues also unexpectedly affected sales of some of our existing products, as certain retailers did not order at their usual volumes. We have now met with these customers to discuss and correct the issues to help ensure improved order volumes going forward.

During the fourth quarter we evaluated the costs of our international sales and decided that we will pause our effort to expand our sales in Europe. Our strategy of selling our products through distributors was ultimately not profitable, and we are evaluating new European sales strategies for the future. However, in the near term, we determined that the deteriorating European financial environment, which has been negatively affected by the strong US dollar, the war in Ukraine, and likely upcoming energy shortages, is not an opportune time to resume our sales efforts. Therefore, we will be liquidating the inventory we currently have located in Europe during fiscal 2023. In the 4^th quarter, we recorded a $800,000 inventory allowance against our earnings, with a good portion of this allowance for the carrying value of our European inventory. We feel that there remains significant long-term potential to expand our sales internationally and remain committed to international expansion. We intend to formulate a new international growth plan, including in Europe, and will consider new sales initiatives once financial conditions improve.

Our fiscal 2022 financial results were also negatively affected by the settlement of a case brought by an association of California District Attorneys. This case related to their ongoing investigation into the environmental labeling and marketing of dog waste bags. The District Attorneys claim that labeling certain dog waste bags, including the Company’s, as biodegradable or compostable were misleading due to the lack of industrial composting facilities that accept dog waste. A number of major retailers also settled their portion of the case. In June 2022, we agreed to settle for a $300,000 payment with no admission of guilt by the Company. In response to the case, we have redesigned our packaging and marketing materials for the poop bags which included feedback from the District Attorneys to help ensure legal compliance for our future sales of the products within California. We have moved forward with the lessons learned from the issue. Sales with the new packaging have resumed throughout the US and are selling well through both retailers and online which demonstrates the consumer’s desire for these types of new products.

Building our inventory required greater cash outlays which we primarily funded through our bank line of credit. Our plan is to repay the line of credit as the inventory is sold and accounts receivable are collected. We reduced our borrowing from a high during the year of $9.5 million to $7.0 million as of August 31^st. Because we are currently well stocked with inventory, we anticipate that we will order and receive smaller amounts of inventory than we historically order during the first quarter and into the second quarter of fiscal 2023. This is expected to allow us to more effectively manage our working capital in fiscal 2023.

We have continued to strategically invest in our personnel, facilities, and equipment. Effective January 1, 2022, Charlie Hopewell moved from the day-to-day operational role as CEO to his overall strategy positions as a Director and Board Chair. Chad Summers assumed the role of Chief Executive Officer in addition to his prior position as President, and Mitch Van Domelen, CPA, was promoted to Chief Financial Officer. Chad Summers was also named a Director in November 2022. We also added new employees and promoted from within to fill important skilled specialty roles to improve our efficiency and expand customer engagement and service, including a new Chief Revenue Officer and newly created positions of a Vice-President of Supply and a Vice-President of Fulfillment formerly consolidated under the COO role. In both 2021 and 2022, we were named a “Top Workplace” by the Oregonian Newspaper, based on employee survey responses which has helped us to retain and attract talent and build a positive corporate culture.

We expanded our facilities though the renovation of an existing warehouse building which we will use for both custom order fulfilment and to support our growing fence business. New investments have been made in technology improvements, including Electronic Data Interchange (EDI) and customer order automation through a Business to Business portal. Our corporate website was upgraded with enhanced accessibility, functionality and modernized investor relations and contact sections. We also redesigned our product section with easier navigation and a more unified brand presentation within a new eCommerce interface.

Although ocean shipping costs have recently fallen from the record highs seen in fiscal 2022, other logistic issues remain. Because of these supply chain and logistic issues, as well as the continuing tariffs levied on Chinese made goods, management is exploring new sources for our raw materials and the manufacture of certain finished products.

The predictions for worsening macroeconomic conditions in the US due to higher rates of inflation and negative consumer sentiment clouds the outlook for fiscal 2023. Higher energy, food and housing prices have severely restrained consumers’ available discretionary income. This has negatively affected their willingness to spend money on non-critical items as reflected in the recent significant decline in the US Index of Consumer Sentiment, which may limit our ability to grow our sales in the near-term. The rate of inflation experienced in fiscal 2022 has resulted in many of our product selling prices lagging our product costs as our customers were slow to adopt our price increases. The rate of inflation is anticipated to continue to increase in the near-term, and we may not be able to increase our prices in response as quickly as our costs could rise. Our current inventory is also being carried at historically high costs as a result of the multiple supply chain and inflationary issues we have been experiencing. This will reduce our gross profit in 2023, even if our other costs fall from the elevated levels of fiscal 2022. Therefore, we expect our margins will continue to be restrained during fiscal 2023.

Our management is cognizant of the current challenges facing our markets, and those affecting our customers. We have carefully formulated a strategy for fiscal 2023 which will utilize our traditional strengths. We will focus on growing our core products, such as gates and kennels, and our popular new products, including Eurofence and Lifetime Post. We also plan to offer more eco-friendly products which build upon our early success selling our popular dog waste bags. We intend to strengthen our historic sales channels such as with big-box retailers and online within North America, while increasing our efficiency and reducing our costs. Our revamped operations team is working with our upgraded technology suite and its enhanced reporting capabilities to reduce our order to cash timeline and improving our shipping by reducing costs and time to receive and deliver our products. The unexpected economic disruptions caused by the COVID pandemic are now subsiding. We believe we can now more effectively manage our business by being able to fully apply the significant strategic and operational investments we have made over the last several years.

Fiscal Years Ended August 31, 2022 and August 31, 2021

Fiscal 2022 sales totaled $62,901,831 compared to sales of $57,501,543 in fiscal 2021, which was an increase of $5,400,288, or 9%. The increase in sales was primarily due to higher sales at JCC.

Gross margin declined to 21.9% from 24.6% in fiscal 2021 due to higher raw material and shipping and logistic costs.

Operating expenses increased by $1,416,552 to $11,823,506 from $10,406,954 in fiscal 2021. The increase was due to higher selling, general and administrative expenses of $4,008,166 from $3,204,945, and an increase in wages and employee benefits, which rose to $7,495,723 from $6,957,730. The Company added additional personnel in specialty areas and increased wages in response to the broad wage inflation being experienced by most industries throughout the area and the United States. Depreciation and amortization increased to $319,617 from $244,279. Income from operations decreased to $1,969,553 from $3,739,692 in fiscal 2021 due to the lower gross margins and the higher costs.

Including other items, income before income taxes was $1,581,000 in fiscal 2022 compared to $4,424,208 in fiscal 2021.

Other items in fiscal 2022 were a loss of ($230,034) which includes a payment 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 that was formerly rented to an unrelated company for $1,000 per month through January 2022. The Company also recorded a gain of $64,000 in the current year related to an evaluation of its reserve for deferred tax, which was determined to be greater than its current liability. Interest expense for the Company’s bank line of credit was $163,045. Other items in fiscal 2021 were gain on extinguishment of debt of $687,387, which was the forgiveness of the Company’s PPP loans. Interest and other expenses were $2,871. Income tax expense was $416,877 compared to $969,255 in fiscal 2021. The Company calculates income tax expense based on combined federal and state rates that are currently in effect.

Net income for fiscal 2022 was $1,164,123, or $0.33 per common share, compared to net income of $3,454,953, or $0.99 per common share, for fiscal 2021. Fiscal 2022 income was negatively affected by the $300,000 legal settlement and the inventory allowance of $800,000, which was partially offset by the $64,000 recovery from deferred income tax. Fiscal 2021 income was positively affected by the significant one-time gain on the forgiveness of the Company’s PPP loans. The weighted number of shares outstanding were 3,493,807 in fiscal 2022 and 3,486,537 in fiscal 2021.

Pet, Fencing and Other - JCC

The sales levels of certain other products, particularly gates and large kennels, declined from their elevated pandemic levels and resulted in negative year-over-year comparisons. These sales were impacted by several issues, particularly supply chain and logistic delays, and by temporary disruptions originating with some of our customers, including purchase restrictions due to inventory management decisions and buyer turnover. A number of our other products, however, recorded significant sales gains in 2022, including the recently introduced Lifetime Steel Posts® and Eurofence products. Lumber sales also increased in fiscal 2022 over the prior year. We were also successful in raising our selling prices in the current period which partially offset our higher raw material and logistic costs.

Sales at JCC were $57,915,828 in fiscal 2022 compared to sales of $51,732,129 in fiscal 2021. Operating income at JCC for 2022 was $1,257,449 compared to $4,052,624 in 2021, which was a decrease of $2,795,175, or 69%. Significantly higher costs, including for raw materials, energy, and shipping and logistics, reduced our margins in fiscal 2022. Our 2022 results were also negatively affected by an inventory allowance of $800,000. This allowance was partially for the inventory currently located in Europe, as management has decided to temporarily withdraw from the European market due to the difficult economic climate, and for the clearance of certain obsolete inventory.

The following table shows a breakdown between the pet, fencing and other categories in this segment.

Industrial Wood Products - Greenwood

Sales at Greenwood in fiscal 2022 were $2,626,209, which was a nominal increase of $28,933 from sales of $2,597,276 in fiscal 2021. Greenwood’s sales have been heavily impacted by the COVID-19 pandemic, as many of their products are sold to municipalities and larger transit operators which continue to see reduced demand for transit services. These customers have also been severely impacted by shortages of components necessary to complete transit products due to logistics and supply chain issues. Greenwood recorded operating income of $21,865 compared to an operating loss of ($144,313) in fiscal 2021.

Seed Processing and Sales - JCSC

Sales at JCSC were $2,359,794 in fiscal 2022 compared to sales of $3,172,138 in fiscal 2021, which represents a decrease of $812,344, or 26%. Extreme temperatures in the Pacific Northwest that occurred during last year’s growing season resulted in lower harvested yields which reduced demand for JCSC’s seed cleaning services. There were also delays in shipping certain grass seed orders to China during fiscal 2022 due to their COVID related border shutdowns. Results for 2022 were also negatively affected by higher equipment and facility maintenance costs. JCSC had an operating loss of (517,453) in fiscal 2022 compared to an operating loss of ($64,538) in fiscal 2021.

Corporate – JC USA

JC USA, the holding company that provides professional and administrative services for the wholly-owned operating subsidiaries had operating income of $819,139 in fiscal 2022 compared to operating income of $580,435 in fiscal 2021. The increase is due to higher rental and administrative fees charged to its subsidiaries related to the inventory levels maintained throughout the year, and the one-time recovery of $64,000 from reserves for deferred taxes. The results of JC USA are inter-company transactions and are eliminated on consolidation.5

LIQUIDITY AND CAPITAL RESOURCES

Fiscal Year Ended August 31, 2022

As of August 31, 2022, the Company had working capital of $19,207,874 compared to working capital of $19,073,194 as of August 31, 2021. The largest change affecting working capital is an increase in inventory of $6,240,948 to $20,632,313 from $14,391,365. Other changes in components of working capital include a decrease in cash of $699,850, an increase in accounts receivable of $105,143, a decrease in prepaid expenses of $1,193,245, and a decrease in prepaid income taxes of $43,995. The decrease in cash is related to the increases in inventory. Prepaid expenses, which is mostly deposits paid for future inventory, declined as the Company’s large current inventory position has reduced the need for additional inventory purchases in the near term.

Accounts payable rose to $1,566,047 from $1,349,677 which is related to the timing of payments due to suppliers. Accrued liabilities increased by $57,951 to $1,856,039 from $1,798,088. Bank indebtedness, which is from the Company’s line of credit and has primarily been used to acquire inventory, was $7,000,000 as of August 31, 2022 compared to $3,000,000 as of August 31, 2021. Deferred tax liability fell to $Nil from $116,945.

As of August 31, 2022, accounts receivable and inventory represented 94% of current assets and 81% of total assets. As of August 31, 2021, accounts receivable and inventory represented 85% of current assets and 74% of total assets. Our customers continue to pay on-time, with almost all of our outstanding receivables classified as current. For the fiscal year ended August 31, 2022, the accounts receivable collection period or DSO was 42 days compared to 45 days for the year ended August 31, 2021. Inventory turnover for the year ended August 31, 2022 was 130 days compared to 99 days for the year ended August 31, 2021.

Short-term and Long-term Debt

External sources of liquidity include a line of credit from U.S. Bank of $10 million, of which $3 million was available as of August 31, 2022. Subsequent to the end of the fiscal year, the Company has drawn an additional $600,000. As of October 28, 2022, $2,400,000 remains 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 August 31, 2022 was 3.86% (2.29% + 1.57%). The line of credit has certain financial covenants. The Company is in compliance with these covenants.

Current Working Capital Requirements

Based on the Company’s current working capital position and the utilization of its current line of credit, the Company expects to have sufficient liquidity available to meet its working capital requirements for fiscal 2023.

OTHER MATTERS

Contractual Obligations and Commercial Commitments

The Company currently has no material contractual obligations or commercial commitments other than to suppliers of products or services.

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. 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.

Environmental, Social and Corporate Governance (ESG)

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

Environmental

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

Active products and designs utilize 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 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, 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.

Critical Accounting Policies

Management is required to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

During the year ended August 31, 2020, the Company adopted Topic 842, Leases, which was issued to replace the leases requirements in Topic 840, Leases. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2021, including interim periods within those annual periods and is to be retrospectively applied. Earlier application is permitted. The Company adopted this ASU on September 1, 2019. There was no material impact on the Company’s financial statements on adoption.

Other than Topic 842, the Company did not adopt any new accounting policies that would have a material impact on the consolidated financial statements, nor did it make changes to accounting policies. Senior Management has discussed with the Audit Committee the development, selection and disclosure of accounting estimates used in the preparation of the consolidated financial statements.

Recent Accounting Pronouncements

Management has reviewed the new accounting guidance and determined that there is not a material impact on our financial statements.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Risk

The Company did not have any derivative financial instruments as of August 31, 2022, and the Company does not use derivative instruments for trading purposes.

Changes in U.S. interest rates affect the interest earned on the Company’s cash as well as interest paid on debt. The Company has a line of credit with an interest rate based on published rates that may fluctuate over time based on economic changes in the environment. The Company is subject to interest rate risk and could be subject to increased interest payments if market interest rates fluctuate. The Company does not expect any change in the interest rates to have a material adverse effect on the Company’s results from operations.

Foreign Currency Risk

The Company operates primarily in the United States. However, a relatively small amount of business is conducted in currencies other than U.S. dollars. Also, to the extent that the Company uses contract manufacturers in China, currency exchange rates can influence the Company’s purchasing costs.

Item 8. Financial Statements and Supplemental Data.

The financial statements and notes thereto are attached hereto. The audit report of Davidson & Company, LLP Chartered Accountants is included herein immediately preceding the audited consolidated financial statements.

Audited Consolidated Financial Statements: fiscal 2022 and 2021

Report of Independent Registered Accounting Firm dated November 28, 2022 (Davidson & Company LLP, Vancouver, Canada, PCAOB ID# 731)

Consolidated Balance Sheets

Balance Sheets at August 31, 2022 and August 31, 2021

Consolidated Statements of Operations

For the years ended August 31, 2022 and August 31, 2021

Consolidated Statements of Stockholders’ Equity

For the years ended August 31, 2022 and August 31, 2021

Consolidated Statements of Cash Flows

For the years ended August 31, 2022 and August 31, 2021

Notes to Financial Statements

Schedule II: Valuation and Qualifying Accounts

JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

AUGUST 31, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and Directors of

Jewett Cameron Trading Company Ltd.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Jewett Cameron Trading Company Ltd. (the “Company”) as of August 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended August 31, 2022 and 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2022 and 2021, and the results of its operations and its cash flows for the years ended August 31, 2022 and 2021 in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenues from sales of pet, fencing, and other products

As indicated in the Company’s statement of operations and in Note 12, 92% of the Company’s sales in the year ended August 31, 2022 were generated through its pet, fencing and other products segment. The business consists of the manufacturing and distribution of specialty metal products and wholesale distribution of wood products to home centers and other retailers located primarily in the United States. Revenues from this segment are the most material number in the Company’s consolidated financial statements. Auditing revenue from the Company’s pet, fencing, and other products segment is challenging and complex due to the volume of transactions through the year and around year end. Further, the Company’s revenue recognition is complex due to the terms of recognition varying by customer.

To address the matter in our audit, we obtained an understanding of the key controls to treat risk of revenue recognition, completeness, occurrence, and cut-off. We analyzed the terms and conditions of the sales contracts and evaluated whether they have been accounted for in line with the Company’s revenue recognition policy. We performed substantive testing procedures over revenue transactions, agreeing key transaction inputs to customer agreements, invoices, purchase orders, shipping documents, bank statements and other relevant documents.

We have served as the Company’s auditor since 1999.

Vancouver, Canada	Chartered Professional Accountants

November 28, 2022

JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

AS OF AUGUST 31

Contingency (Note 15)

Subsequent Events (Note 16)

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

JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. Dollars)

YEARS ENDED AUGUST 31

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

JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(Expressed in U.S. Dollars)

YEARS ENDED AUGUST 31

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

JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

YEARS ENDED AUGUST 31

Supplemental disclosure with respect to cash flows (note 14)

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

JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

Jewett-Cameron Trading Company Ltd. was incorporated in British Columbia on July 8, 1987 as a holding company for Jewett-Cameron Lumber Corporation (“JCLC”), incorporated September 1953. Jewett-Cameron Trading Company, Ltd. acquired all the shares of JCLC through a stock-for-stock exchange on July 13, 1987, and at that time JCLC became a wholly owned subsidiary. Effective September 1, 2013, the Company reorganized certain of its subsidiaries. JCLC’s name was changed to JC USA Inc. (“JC USA”), and a new subsidiary, Jewett-Cameron Company (“JCC”), was incorporated.

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

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

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

Generally accepted accounting principles

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

Principles of consolidation

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

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

Estimates

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

Cash and cash equivalents

The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. At August 31, 2022, cash and cash equivalents were $484,463 compared to $1,184,313 at August 31, 2021.

Accounts receivable

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

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

Inventory

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

Property, plant and equipment

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

Intangibles

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

Asset retirement obligations

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

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

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

Currency and foreign exchange

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

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

Earnings per share

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

The earnings per share data for the fiscal years ended August 31, 2022 and 2021 are as follows:

Comprehensive income

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

Stock-based compensation

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

Financial instruments

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

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

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

Bank Indebtedness - the carrying amount approximates fair value due to the short-term nature of the obligations.

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

The estimated fair values of the Company's financial instruments as of August 31, 2022 and 2021 follows:

The following table presents information about the assets that are measured at fair value on a recurring basis as of August 31, 2022 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:

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

Income taxes

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

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

Shipping and handling costs

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

Revenue recognition

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

A summary of inventory as of August 31, 2022 and 2021 is as follows:

A summary of property, plant, and equipment as of August 31, 2022 and 2021 is as follows:

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

A summary of intangible assets as of August 31, 2022 and 2021 follows:

A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows:

Deferred income tax asset as of August 31, 2022 of $24,998 (August 31, 2021 – liability of $116,945) reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Bank indebtedness under the Company’s $10,000,000 line of credit as of August 31, 2022 was $7,000,000 (August 31, 2021 - $3,000,000). The Line of Credit was increased during the current fiscal year from $5,000,000 to $10,000,000.

Bank indebtedness, when it exists, 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 August 31, 2022 was 3.85% (2.28% + 1.57%).

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

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

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

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

Common stock

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

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

The maximum number of Common Shares reserved for issuance under the Plan will not exceed 1% of the then issued and outstanding number of Common Shares at the time of the grant. As of August 31, 2021, the maximum number of shares available to be issued under the Plan was 31,713.

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

During fiscal 2021 ended August 31, 2021, the Company issued 7,999 common shares to Officers, Directors and Employees under the RSA Plan at a deemed price of $8.80 per share. 6,564 of these shares were issued to Officers and Directors without a Restricted Period under the Company’s S-8 Registration Statement filed on December 7, 2020. The remaining 1,435 shares were issued to Employees and have a three-year Restricted Period.

During fiscal 2022 ended August 31, 2022, the Company made three issuances of common shares under the RSA Plan. Under the first issuance, a total of 2,603 common shares were issued to Officers, Directors and Employees at a deemed price of $10.70 per share. 2,015 of these shares were issued to Officers and Directors without a Restricted Period under the Company’s S-8 Registration Statement filed on December 7, 2020. The remaining 588 shares were issued to Employees and have a three-year Restricted Period. Under the second issuance, 2,500 common shares were issued to the Company’s Chief Executive Officer at a deemed price of $7.80 per share. These 2,500 common shares were issued without a Restricted Period under the Company’s S-8 Registration Statement. 1,078 shares were issued at a deemed price of $8.80 per share as the second year’s allocation of shares to employees who were granted shares in a three-year vesting period beginning in fiscal 2021.

The Company has a deferred compensation 401(k) plan for all employees with at least 6 months of service pending a monthly enrollment time. The plan allows for a non-elective discretionary contribution plus matching employee contributions up to a specific limit. The percentages of contribution remain the discretion of the Board and are reviewed with management annually. For the years ended August 31, 2022 and 2021 the 401(k) compensation expense was $516,991 and $530,311, respectively.

The Company has three principal reportable segments. These reportable segments were determined based on the nature of the products offered. Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

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

Following is a summary of segmented information for the years ended August 31: