UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2013
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER 000-19954
JEWETT-CAMERON TRADING COMPANY LTD. |
(Exact Name of Registrant as Specified in its Charter) |
BRITISH COLUMBIA |
| NONE |
(State or Other Jurisdiction of Incorporation or Organization) |
| (I.R.S. Employer Identification No.) |
32275 N.W. Hillcrest, North Plains, Oregon |
| 97133 |
(Address Of Principal Executive Offices) |
| (Zip Code) |
(503) 647-0110 |
(Registrants Telephone Number, Including Area Code) |
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. x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller Reporting Company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value 3,134,936 common shares as of January 13, 2014.
Jewett-Cameron Trading Company Ltd.
Index to Form 10-Q
- 2 -
PART 1 FINANCIAL INFORMATION
Item 1.
Financial Statements
JEWETT-CAMERON TRADING COMPANY LTD.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
(Unaudited Prepared by Management)
NOVEMBER 30, 2013
- 3 -
JEWETT-CAMERON TRADING COMPANY LTD.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
(Prepared by Management)
(Unaudited)
| November 30, 2013 |
| August 31, 2013 |
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
Current assets |
|
|
|
Cash | $ 8,096,072 |
| $ 8,308,445 |
Accounts receivable, net of allowance of $Nil (August 31, 2013 - $Nil) | 2,237,734 |
| 3,344,777 |
Inventory, net of allowance of $134,259 (August 31, 2013 - $134,259) (note 3) | 8,374,751 |
| 8,520,991 |
Note receivable | - |
| 15,000 |
Prepaid expenses | 883,172 |
| 587,609 |
Prepaid income taxes | 43,744 |
| 270,423 |
|
|
|
|
Total current assets | 19,635,473 |
| 21,047,245 |
|
|
|
|
Property, plant and equipment, net (note 4) | 2,247,334 |
| 2,241,950 |
Intangible assets, net (note 5) | 350,486 |
| 368,662 |
|
|
|
|
Total assets | $ 22,233,293 |
| $ 23,657,857 |
|
|
|
|
- Continued -
The accompanying notes are an integral part of these consolidated financial statements.
- 4 -
JEWETT-CAMERON TRADING COMPANY LTD.
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
(Prepared by Management)
(Unaudited)
| November 30, 2013 |
| August 31, 2013 |
|
|
|
|
Continued |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable | $ 453,525 |
| $ 1,715,458 |
Litigation reserve (note 13(a)) | 137,442 |
| 144,103 |
Accrued liabilities | 665,897 |
| 1,149,882 |
|
|
|
|
Total current liabilities | 1,256,864 |
| 3,009,443 |
|
|
|
|
Deferred tax liability (note 6) | 45,829 |
| 50,393 |
|
|
|
|
Total liabilities | 1,302,693 |
| 3,059,836 |
|
|
|
|
Contingent liabilities and commitments (note 13) |
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
Capital stock (note 8) |
|
|
|
Authorized |
|
|
|
21,567,564 common shares, without par value |
|
|
|
10,000,000 preferred shares, without par value |
|
|
|
Issued |
|
|
|
3,134,936 common shares (August 31, 2013 - 3,134,936) | 1,479,246 |
| 1,479,246 |
Additional paid-in capital | 600,804 |
| 600,804 |
Retained earnings | 18,850,550 |
| 18,517,971 |
|
|
|
|
Total stockholders equity | 20,930,600 |
| 20,598,021 |
|
|
|
|
Total liabilities and stockholders equity | $ 22,233,293 |
| $ 23,657,857 |
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 5 -
JEWETT-CAMERON TRADING COMPANY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
(Prepared by Management)
(Unaudited)
| Three Months Ended November 30, | ||
| 2013 |
| 2012 |
|
|
|
|
SALES | $ 8,006,281 |
| $ 9,296,405 |
|
|
|
|
COST OF SALES | 6,156,502 |
| 7,305,399 |
|
|
|
|
GROSS PROFIT | 1,849,779 |
| 1,991,006 |
|
|
|
|
OPERATING EXPENSES |
|
|
|
Selling, general and administrative expenses | 391,886 |
| 335,820 |
Depreciation and amortization | 70,019 |
| 57,494 |
Wages and employee benefits | 843,950 |
| 825,307 |
|
|
|
|
| 1,305,855 |
| 1,218,621 |
|
|
|
|
Income from operations | 543,924 |
| 772,385 |
|
|
|
|
OTHER ITEMS |
|
|
|
Interest and other income | 6,661 |
| 16,710 |
Gain on sale of equipment | 4,109 |
| - |
| 10,770 |
| 16,710 |
|
|
|
|
Income before income taxes | 554,694 |
| 789,095 |
|
|
|
|
Income tax expense | (222,115) |
| (308,349) |
|
|
|
|
Net income | $ 332,579 |
| $ 480,746 |
|
|
|
|
Basic earnings per common share | $ 0.11 |
| $ 0.15 |
|
|
|
|
Diluted earnings per common share | $ 0.11 |
| $ 0.15 |
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
Basic | 3,134,936 |
| 3,135,942 |
Diluted | 3,134,936 |
| 3,135,942 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
- 6 -
JEWETT-CAMERON TRADING COMPANY LTD.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
(Prepared by Management)
(Unaudited)
| Capital Stock |
|
|
| |
Number of Shares | Amount | Additional paid-in capital | Retained earnings | Total | |
|
|
|
|
|
|
August 31, 2011 | 3,816,914 | $ 1,801,043 | $ 600,804 | $ 15,086,971 | $ 17,488,818 |
|
|
|
|
|
|
Shares repurchased and cancelled (note 9) | (680,972) | (321,322) | - | (2,754,237) | (3,075,559) |
Net income | - | - | - | 3,059,931 | 3,059,931 |
|
|
|
|
|
|
August 31, 2012 | 3,135,942 | 1,479,721 | 600,804 | 15,392,665 | 17,473,190 |
|
|
|
|
|
|
Shares repurchased and cancelled (note 9) | (1,006) | (475) | - | (6,713) | (7,188) |
Net income | - | - | - | 3,132,019 | 3,132,019 |
|
|
|
|
|
|
August 31, 2013 | 3,134,936 | $ 1,479,246 | $ 600,804 | $ 18,517,971 | $ 20,598,021 |
|
|
|
|
|
|
Net income | - | - | - | 332,579 | 332,579 |
|
|
|
|
|
|
November 30, 2013 | 3,134,936 | $ 1,479,246 | $ 600,804 | $ 18,850,550 | $ 20,930,600 |
The accompanying notes are an integral part of these consolidated financial statements.
- 7 -
JEWETT-CAMERON TRADING COMPANY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
(Prepared by Management)
(Unaudited)
| Three Month Periods Ended November 30, | ||
| 2013 |
| 2012 |
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES |
|
|
|
Net income | $ 332,579 |
| $ 480,746 |
Items not involving an outlay of cash: |
|
|
|
Depreciation and amortization | 70,019 |
| 57,494 |
Gain on sale of equipment | (4,109) |
| - |
Deferred income taxes | (4,564) |
| 14,323 |
Interest income on litigation | (6,661) |
| (6,661) |
|
|
|
|
Changes in non-cash working capital items: |
|
|
|
Decrease in accounts receivable | 1,107,043 |
| 426,020 |
Decrease in inventory | 146,240 |
| 1,324,365 |
Decrease in note receivable | 15,000 |
| 20,000 |
Decrease in prepaid income taxes | 226,679 |
| - |
Increase in prepaid expenses | (295,563) |
| (1,579,612) |
Decrease in accounts payable and accrued liabilities | (1,745,918) |
| (971,229) |
Increase in accrued income taxes | - |
| 293,754 |
|
|
|
|
Net cash provided (used) by operating activities | (159,255) |
| 59,200 |
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES |
|
|
|
Purchase of property, plant and equipment | (57,918) |
| (112,133) |
Proceeds from sale of equipment | 4,800 |
| - |
|
|
|
|
Net cash used in investing activities | (53,118) |
| (112,133) |
|
|
|
|
Net decrease in cash | (212,373) |
| (52,933) |
|
|
|
|
Cash, beginning of period | 8,308,445 |
| 7,309,388 |
|
|
|
|
Cash, end of period | $ 8,096,072 |
| $ 7,256,455 |
|
|
|
|
Supplemental disclosure with respect to cash flows (note 16)
The accompanying notes are an integral part of these consolidated financial statements.
- 8 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
1.
NATURE OF OPERATIONS
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. JCLCs 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: MSI-PRO Co. (MSI), incorporated April 1996, Jewett-Cameron Seed Company, (JCSC), incorporated October 2000, Greenwood Products, Inc. (Greenwood), incorporated February 2002, and Jewett-Cameron Company, incorporated September 2013. 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. JCCs 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. 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. MSI is an importer and distributor of pneumatic air tools and industrial clamps in the United States. JCSC is a processor and distributor of agricultural seeds in the United States. JC USA provides professional and administrative services, including accounting and credit services, to its subsidiary companies.
These unaudited financial statements are those of the Company and its wholly owned subsidiaries. In the opinion of management, the accompanying Consolidated Financial Statements of Jewett-Cameron Trading Company Ltd., contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state its financial position as of November 30, 2013 and August 31, 2013 and its results of operations and cash flows for the three month periods ended November 30, 2013 and November 30, 2012 in accordance with U.S. GAAP. Operating results for the three month period ended November 30, 2013 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2014.
2.
SIGNIFICANT ACCOUNTING POLICIES
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 wholly owned subsidiaries, JC USA, JCC, MSI, 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.
- 9 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
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 Companys 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 maturity of three months or less at the time of issuance to be cash equivalents. At November 30, 2013, cash was $8,096,072 compared to $8,308,445 at August 31, 2013. At November 30, 2013 and August 31, 2013, there were no cash equivalents.
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:
| Office equipment | 5-7 years |
| Warehouse equipment | 2-10 years |
| Buildings | 5-30 years |
Intangibles
The Companys intangible assets have a finite life and are recorded at cost. The most significant intangible assets are two patents related to gate support systems. Amortization is calculated using the straight-line method over the remaining lives of 51 months and 63 months, respectively, and are reviewed annually for impairment.
- 10 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
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 based only 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 income statement 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 three months ended November 30, 2013 and November 30, 2012 are as follows:
|
| 2013 |
| 2012 |
|
|
|
|
|
| Net income | $ 332,579 |
| $ 480,746 |
|
|
|
|
|
| Basic weighted average number of common shares outstanding | 3,134,936 |
| 3,135,942 |
|
|
|
|
|
| Effect of dilutive securities |
|
|
|
| Stock options | - |
| - |
|
|
|
|
|
| Diluted weighted average number of common shares outstanding | 3,134,936 |
| 3,135,942 |
- 11 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
Comprehensive income
The Company has no items of other comprehensive income in any period 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.
No options were granted during the quarter ended November 30, 2013, and there were no options outstanding on November 30, 2013.
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.
Notes receivable - the carrying amounts approximate fair value due to the short-term nature of the amount.
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 November 30, 2013 and August 31, 2013 follows:
|
| November 30, 2013 |
| August 31, 2013 | ||
|
| Carrying | Fair |
| Carrying | Fair |
|
| Amount | Value |
| Amount | Value |
| Cash | $8,096,072 | $8,096,072 |
| $8,308,445 | $8,308,445 |
| Accounts receivable, net of allowance | 2,237,734 | 2,237,734 |
| 3,344,777 | 3,344,777 |
| Note receivable | - | - |
| 15,000 | 15,000 |
| Accounts payable and accrued liabilities | 1,119,422 | 1,119,422 |
| 2,865,340 | 2,865,340 |
- 12 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
Financial instruments (contd )
The following table presents information about the assets that are measured at fair value on a recurring basis as of November 30, 2013, 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:
|
|
| November 30, 2013 |
| Quoted Prices |
| Significant |
| Significant | ||||
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash |
| $ | 8,096,072 |
| $ | 8,096,072 |
| $ | |
| $ | |
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 carryforwards. 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 goods sold in the consolidated statement of operations. All costs billed to the customer are included as revenue in the consolidated statement 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.
Reclassifications
Certain reclassifications have been made to prior years financial statements to conform to the classifications used in the current year. These reclassifications include adjustments to reflect the reorganization of the Corporate structure and reporting segments effective September 1, 2013.
- 13 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
Recent Accounting Pronouncements
Management has reviewed the new accounting guidance and determined that there is not a material impact on our financial statements.
3.
INVENTORY
A summary of inventory is as follows:
|
| November 30, 2013 |
| August 31, 2013 |
|
|
|
|
|
|
|
|
|
|
| Wood products and metal products | $ 7,784,932 |
| $ 7,984,678 |
| Industrial tools | 527,507 |
| 482,949 |
| Agricultural seed products | 62,312 |
| 53,364 |
|
|
|
|
|
|
| $ 8,374,751 |
| $ 8,520,991 |
4.
PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant, and equipment is as follows:
|
| November 30, 2013 |
| August 31, 2013 |
|
|
|
|
|
| Office equipment | $ 557,456 |
| $ 565,575 |
| Warehouse equipment | 1,467,602 |
| 1,431,707 |
| Buildings | 2,695,810 |
| 2,681,989 |
| Land | 761,924 |
| 761,924 |
|
| 5,482,792 |
| 5,441,195 |
|
|
|
|
|
| Accumulated depreciation | (3,235,458) |
| (3,199,245) |
|
|
|
|
|
| Net book value | $ 2,247,334 |
| $ 2,241,950 |
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.
- 14 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
5.
INTANGIBLE ASSETS
A summary of intangible assets is as follows:
|
| November 30, 2013 |
| August 31, 2013 |
| Patent | $ 850,000 |
| $ 850,000 |
| Other | 43,655 |
| 43,655 |
|
| 893,655 |
| 893,655 |
| Accumulated amortization | (543,169) |
| (524,993) |
|
|
|
|
|
| Net book value | $ 350,486 |
| $ 368,662 |
6.
DEFERRED INCOME TAXES
Deferred income tax liability as of November 30, 2013 of $45,829 (August 31, 2013 $50,393) reflect 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.
7.
BANK INDEBTEDNESS
There was no bank indebtedness under the Companys line of credit as of November 30, 2013 or August 31, 2013.
Bank indebtedness, when it exists, is secured by an assignment of accounts receivable and inventory. Interest is calculated solely on the one month LIBOR rate plus 200 basis points.
8.
CAPITAL STOCK
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.
Common Stock Split
The Company declared a two for one stock split of its common stock with a record date at the close of business on April 25, 2013. Shareholders received one additional common share for each common share held as of the record date. The stock split was effective as of May 2, 2013. Share and per share data have been retroactively adjusted to reflect the effects of the stock split.
- 15 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
9.
CANCELLATION OF CAPITAL STOCK
Treasury stock may be kept based on an acceptable inventory method such as the average cost basis. Upon disposition or cancellation, the treasury stock account is credited for an amount equal to the number of shares cancelled, multiplied by the cost per share and the difference is treated as additional paid-in-capital in excess of stated value.
During the 4th quarter of fiscal 2013 ended August 31, 2013, the Company repurchased and cancelled a total of 192 common shares under a 10b5-1 share repurchase plan. The total cost was $2,304 at an average price of $12.00 per share. The premium paid to acquire these shares over their per share book value in the amount of $2,213 was recorded as a decrease to retained earnings.
During the 2nd quarter of fiscal 2013 ended February 28, 2013, the Company repurchased and cancelled a total of 814 common shares common shares of its common stock under a 10b5-1 share repurchase plan. The total cost was $4,884 at an average price of $6.00 per share. The premium paid to acquire these shares over their per share book value in the amount of $4,500 was recorded as a decrease to retained earnings.
During the 3rd quarter of fiscal 2012 ended May 31, 2012, the Company repurchased and cancelled a total of 83,798 common shares of its common stock under a 10b5-1 share repurchase plan. The total cost was $382,510 at an average price of $4.56 per share. The premium paid to acquire these shares over their per share book value in the amount of $342,969 was recorded as a decrease to retained earnings.
During the 2nd quarter of fiscal 2012 ended February 29, 2012, the Company repurchased and cancelled a total of 497,174 shares of its common stock under a 10b5-1 share repurchase plan. The total cost was $2,238,929 at an average share price of $4.50 per share. The premium paid to acquire these shares over their per share book value in the amount of $2,004,334 was recorded as a decrease to retained earnings.
During the 1st quarter of fiscal 2012 ended November 30, 2011, the Company repurchased and cancelled a total of 100,000 shares of its common stock under a 10b5-1 share repurchase plan. The total cost was $454,120 at an average share price of $4.54 per share. The premium paid to acquire these shares over their per share book value in the amount of $406,934 was recorded as a decrease to retained earnings.
10.
STOCK OPTIONS
The Company has a stock option program under which stock options to purchase securities from the Company can be granted to directors and employees of the Company on terms and conditions acceptable to the regulatory authorities of Canada, notably the Ontario Securities Commission and the British Columbia Securities Commission.
Under the stock option program, stock options for up to 10% of the number of issued and outstanding common shares may be granted from time to time, provided that stock options in favor of any one individual may not exceed 5% of the issued and outstanding common shares. No stock option granted under the stock option program is transferable by the optionee other than by will or the laws of descent and distribution, and each stock option is exercisable during the lifetime of the optionee only by such optionee. Generally, no option can be for a term of more than 10 years from the date of the grant.
The exercise price of all stock options, granted under the stock option program, must be at least equal to the fair market value (subject to regulated discounts) of such common shares on the date of grant. Options vest at the discretion of the Board of Directors.
The Company had no stock options outstanding as of November 30, 2013 and August 31, 2013.
- 16 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
11.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company sponsors an ESOP that covers all U.S. employees who are employed by the Company on August 31 of each year and who have at least one thousand hours with the Company in the twelve months preceding that date. The ESOP formerly held common shares of the Company and granted to participants in the plan certain ownership rights in, but not possession of, or voting control of, any common stock of the Company held by the Trustee of the Plan. Shares of common stock were allocated annually to participants in the ESOP pursuant to a prescribed formula. The Company records compensation expense based on the market price of the Company's shares when they were allocated. Any dividends on allocated ESOP shares are recorded as a reduction of retained earnings. Beginning in fiscal 2010, the ESOP began its investment in diversified mutual funds. During fiscal 2011 and 2012, all of the Companys shares held by the ESOP were sold, with the majority repurchased by the Company and cancelled under the 10b5-1 share repurchase plans. Effective June 30, 2012, the ESOP was terminated, subject to the approval of the Internal Revenue Service. No further contributions shall be made to the ESOP. On October 18, 2013, the Internal Revenue Service issued a favorable determination letter for the termination of the ESOP, and the Plan is in process of distributing the remaining assets to participants.
ESOP compensation expense was $Nil and $Nil for the fiscal years ended August 31, 2013 and 2012, respectively, and is included in wages and employee benefits. No shares were owned by the ESOP at August 31, 2013 or 2012.
12.
PENSION AND PROFIT-SHARING PLANS
The Company has a deferred compensation 401(k) plan for all employees with at least 12 months of service pending a semi-annual enrolment time. The plan allows for a non-elective discretionary contribution based on the first $60,000 of eligible compensation. For the quarters ended November 30, 2013 and 2012 the 401(k) compensation expense was $47,754 and $22,730, respectively.
- 17 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
13.
CONTINGENT LIABILITIES AND COMMITMENTS
a)
A subsidiary was a plaintiff in a lawsuit filed in Portland, Oregon, entitled, Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc. et al., Case No. 05-02553 (Multnomah County Circuit Court).
During fiscal 2002 the Company entered into a purchase agreement to acquire inventory over a 15 month period with an initial estimated value of $7,000,000 from Greenwood Forest Products, Inc. During the year ended August 31, 2003, the Company completed the final phase of the inventory acquisition. As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased. The Company believes it overpaid the obligation by approximately $820,000. The holder counterclaimed for approximately $2,400,000.
Litigation was completed on March 5, 2007, with the courts general judgment and money award. The net effect was money judgment in favor of Greenwood Forest Products, Inc. for $242,604. The Company accrued reserves to cover the money judgment related to this dispute. Both parties filed appeals for review of the courts opinion.
During the 1st quarter of fiscal 2011, the Oregon Court of Appeals ruled that the judgment in favor of Jewett Cameron as plaintiffs should be reversed and the judgment in favor of the defendants should stand. The judgment in favor of the Company was for $819,000 plus attorneys fees. The judgment against the plaintiffs is for $1,187,137. The Company appealed the decision to the Oregon Supreme Court. During the 1st quarter of fiscal 2011, the Company recorded a litigation loss of $962,137 and interest of $391,988 in addition to the existing litigation reserve of $225,000. Additional interest of $48,790 was recorded during the remainder of fiscal 2011. During the 1st quarter of fiscal 2012 ended November 30, 2011, additional interest of $16,204 was accrued.
In February 2012, the Company received the decision from the Oregon Supreme Court which was favorable to Jewett Cameron as plaintiff. As a result, the Company has reversed $1,459,832 of the litigation reserve and accrued interest during the 2nd quarter of fiscal 2012 ended February 29, 2012. The reversal was treated as a one-time gain during the quarter.
During the year ended August 31, 2013, the Company recorded $26,716 of interest income due to the favorable difference in interest rates between the judgments. During the period ended November 30, 2013, the Company recorded $6,661 of interest income.
A summary of the litigation reserve is as follows:
|
| November 30, 2013 |
| August 31, 2013 |
|
|
|
|
|
| Litigation loss | $ - |
| $ - |
| Litigation reserve | 144,103 |
| 170,819 |
| Interest expense | - |
| - |
| Interest income | (6,661) |
| (26,716) |
| Total | $ 137,442 |
| $ 144,103 |
b)
At November 30, 2013 and August 31, 2013 the Company had an un-utilized line-of-credit of $5,000,000 (note 7). The line-of-credit has certain financial covenants. The Company is in compliance with these covenants.
- 18 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
14.
SEGMENT INFORMATION
The Company has four 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.
Effective September 1, 2013, the Company reorganized certain of its subsidiaries. The majority of fixed and intangible assets, and certain Corporate and administrative functions which were formerly contained within the Lawn, garden, pet and other reporting segment are now classified as Corporate and administrative. The segment information for the quarter ended November 30, 2012 has been restated for comparability purposes.
Following is a summary of segmented information for the three month periods ended November 30:
|
| 2013 |
| 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Sales to unaffiliated customers: |
|
|
|
|
| Industrial wood products | $ 1,457,246 |
| $ 2,361,471 |
|
| Lawn, garden, pet and other | 5,443,943 |
| 4,772,939 |
|
| Seed processing and sales | 740,742 |
| 1,810,645 |
|
| Industrial tools and clamps | 364,350 |
| 351,350 |
|
|
| $ 8,006,281 |
| $ 9,296,405 |
|
|
|
|
|
|
|
| Income (loss) before income taxes: |
|
|
|
|
| Industrial wood products | $ (11,424) |
| $ 62,545 |
|
| Lawn, garden, pet and other | 258,917 |
| 414,204 |
|
| Seed processing and sales | 73,648 |
| 109,004 |
|
| Industrial tools and clamps | 37,264 |
| 34,732 |
|
| Corporate and administrative | 196,289 |
| 168,610 |
|
|
| $ 554,694 |
| $ 789,095 |
|
|
|
|
|
|
|
| Identifiable assets: |
|
|
|
|
| Industrial wood products | $ 1,440,281 |
| $ 1,840,340 |
|
| Lawn, garden, pet and other | 8,929,943 |
| 7,029,438 |
|
| Seed processing and sales | 196,819 |
| 727,220 |
|
| Industrial tools and clamps | 616,992 |
| 609,409 |
|
| Corporate and administrative | 11,049,258 |
| 10,029,664 |
|
|
| $ 22,233,293 |
| $ 20,236,071 |
|
|
|
|
|
|
|
| Depreciation and amortization: |
|
|
|
|
| Industrial wood products | $ 245 |
| $ 403 |
|
| Lawn, garden, pet and other | 10,101 |
| 1,352 |
|
| Seed processing and sales | 3,450 |
| 3,884 |
|
| Industrial tools and clamps | 1,904 |
| 1,426 |
|
| Corporate and administrative | 54,319 |
| 50,429 |
|
|
| $ 70,019 |
| $ 57,494 |
|
- 19 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
14.
SEGMENT INFORMATION (contd )
|
| 2013 |
| 2012 |
|
| Capital expenditures: |
|
|
|
|
| Industrial wood products | $ - |
| $ - |
|
| Lawn, garden, pet and other | - |
| - |
|
| Seed processing and sales | - |
| - |
|
| Industrial tools and clamps | - |
| - |
|
| Corporate and administrative | 57,918 |
| 112,133 |
|
|
| $ 57,918 |
| $ 112,133 |
|
|
|
|
|
|
|
| Interest expense: |
|
|
|
|
| Lawn, garden, pet and other | $ - |
| $ - |
|
The following table lists sales made by the Company to customers which were in excess of 10% of total sales for the three months ended November 30:
|
| 2013 |
| 2012 |
| Sales | $ 3,314,699 |
| $ 1,926,150 |
The Company conducts business primarily in the United States, but also has limited amounts of sales in foreign countries. The following table lists sales by country for the quarter ended November 30:
|
| 2013 |
| 2012 |
|
|
|
|
|
| United States | $ 7,399,773 |
| $ 7,680,338 |
| Canada | 137,935 |
| 467,597 |
| Mexico/Latin America | 379,032 |
| 1,097,390 |
| Europe | 89,541 |
| 33,306 |
| Asia/Pacific | - |
| 17,774 |
All of the Companys significant identifiable assets were located in the United States as of November 30, 2013 and 2012.
- 20 -
JEWETT-CAMERON TRADING COMPANY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
November 30, 2013
(Unaudited)
15.
CONCENTRATIONS
Credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company places its cash with a high quality financial institution. The Company has concentrations of credit risk with respect to accounts receivable as large amounts of its accounts receivable are concentrated geographically in the United States amongst a small number of customers. At November 30, 2013, two customers accounted for accounts receivable greater than 10% of total accounts receivable at 38%. At November 30, 2012, two customers accounted for accounts receivable greater than 10% of total accounts receivable at 29%. The Company controls credit risk through credit approvals, credit limits, credit insurance and monitoring procedures. The Company performs credit evaluations of its commercial customers but generally does not require collateral to support accounts receivable.
Volume of business
The Company has concentrations in the volume of purchases it conducts with its suppliers. For the three months ended November 30, 2013, there were three suppliers that each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $2,605,730. For the three months ended November 30, 2012, there were two suppliers that each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $2,250,297.
16.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Certain cash payments for the three months ended November 30 are summarized as follows:
|
| 2013 |
| 2012 |
|
|
|
|
|
| Cash paid during the periods for: |
|
|
|
| Interest | $ - |
| $ - |
| Income taxes | $ - |
| $ - |
There were no non-cash investing or financing activities during the periods presented.
- 21 -
Item 2.
Managements Discussion and Analysis of Financial Condition and Results of Operations.
These unaudited financial statements are those of the Company and its wholly owned subsidiaries. In the opinion of management, the accompanying consolidated financial statements of Jewett-Cameron Trading Company Ltd., contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state its financial position as of November 30, 2013 and August 31, 2013 and its results of operations and cash flows for the three month period ended November 30, 2013 and November 30, 2012 in accordance with U.S. GAAP. Operating results for the three month period ended November 30, 2013 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2014.
The Companys operations are classified into four reportable segments, 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
·
Industrial tools
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 four 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 boat manufacturers and the transportation industry.
The lawn, garden, pet and other segment reflects the business of the newly incorporated Jewett-Cameron Company (JCC), which is a manufacturer and distributor of specialty metal products and a wholesaler of wood products formerly conducted by JCLC. Wood products include fencing and landscape timbers, while metal products include dog kennels, proprietary gate support systems, perimeter fencing, and greenhouses. JCC uses contract manufacturers to make the specialty metal products. Some of the products that JCC distributes flow through the Companys distribution center located in North Plains, Oregon, and some are shipped direct to the customer from the manufacturer. Primary customers are home centers and other retailers.
The seed processing and sales segment reflects the business of Jewett-Cameron Seed Company (JCSC). JCSC processes and distributes agricultural seed. Most of this segments sales come from selling seed to distributors with a lesser amount of sales derived from cleaning seed.
The industrial tools segment reflects the business of MSI-PRO (MSI). MSI imports and distributes products including pneumatic air tools, industrial clamps, and saw blades; that are primarily sold to retailers that in turn sell to contractors and end users.
RESULTS OF OPERATIONS
Three Months Ended November 30, 2013 and November 30, 2012
For the three months ended November 30, 2013, sales decreased $1,290,124 to $8,006,281 from $9,296,405 for the three months ended November 30, 2012.
Sales at Greenwood were $1,457,246 for the three months ended November 30, 2013 compared to sales of $2,361,471 for the three months ended November 30, 2012, which was a decrease of $904,225, or 38%. Demand for Greenwoods products remained weak, as sales to boat manufactures continue to be severely affected by the downturn in the economy. Sales of plywood to boat manufacturers represented approximately 20% and 17% of Greenwoods total sales during fiscal 2013 and 2012, respectively. Boat manufacturers continue to work down excess inventory accumulated over the several years, and until such point, we do not foresee an industry recovery. We continue to develop a readiness to participate when the market rebounds. In the meantime, we have been searching for alternative uses for our industrial wood products and developing new customer relationships. For the quarter, Greenwood had an operating loss of ($11,424) compared to operating income of $62,545 in the three months ended November 30, 2012. The operating loss for the current quarter was consistent with the decline in sales for the segment.
- 22 -
Sales at JCC were $5,443,943 for the three months ended November 30, 2013 compared to sales of $4,772,939 for the three months ended November 30, 2012, which was an increase of $671,004, or 14%. The increase in sales was primarily due to the Companys efforts to expand its customer base through the addition of small and mid-sized customers. Operating income was $454,927 for the three months ended November 30, 2013, which was a decrease of $115,313 compared to income of $570,240 for the three months ended November 30, 2012. The decline in segment income was due to several factors, including an increase in overall market competitiveness. Raw material prices have increased, resulting in lower margins. The Company has also offered new customers sales incentives including introductory pricing. Selling expenses have increased in efforts to obtain new business, including trade shows, travel and the addition of one salesman. Overall, the operating results of JCLC are seasonal with the first two quarters of the fiscal year being much slower than the final two quarters of the fiscal year.
Sales at JCSC were $740,742 for the three months ended November 30, 2013 compared to sales of $1,810,645 for the three months ended November 30, 2012. This represents a decrease of $1,069,903, or 59%. Product seed sales decreased primarily due to the departure of our lead salesman during 2013. Seed cleaning service revenue has declined as more growers have begun to clean in-house. There has also been an overall reduction in grass seed acreage as higher grain prices have encouraged growers to shift acreage to higher margin food crops.
Sales at MSI were $364,350 for the three months ended November 30, 2013 compared to sales of $351,350 for the three months ended November 30, 2012, which was an increase of $13,000, or 4%. The Company has wound down certain sales programs of its lower margin products and has concentrated on selling its more profitable products. This sales shift resulted in higher operating profit of the quarter of $43,415 compared to a profit of $34,732 for the comparative quarter in the prior year.
Gross margin for the three month period ended November 30, 2013 was 23.1% compared to 21.4% for the three months ended November 30, 2012. The rise in gross margins in the current quarter was due to a favorable sales mix of higher margin metal products. However, higher raw material costs are restraining our overall margins.
The Company's income tax expense in the current period was $222,115 compared to $308,349 for the three months ended November 30, 2012. Net income for the three months ended November 30, 2012 was $332,579, or $0.11 per basic and diluted share, compared to net income of $480,746, or $0.15 per basic and diluted share for the three months ended November 30, 2012, as adjusted for the two for one common stock split effective May 2, 2013. The lower net income in the current quarter was negatively affected by higher operating expenses due to increased selling costs related to the Companys recent efforts to expand its customer base to smaller and mid-sized companies.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2013, the Company had working capital of $18,378,609 compared to working capital of $18,037,802 as of August 31, 2013, an increase of $340,807. The increase was largely due to the Companys net income from the first quarter ended November 30, 2013. Cash declined to $8,096,072, a decrease of $212,373. Accounts receivable declined to $2,237,734 from $3,344,777 due to the seasonal cycle of sales to customers and the related timing of cash receipts. Inventory decreased by $146,240 and prepaid expenses, which are largely related to down payments for future inventory purchases, increased by $295,563. Note receivable declined by $15,000 as the remaining balance of the note was repaid during the quarter. Accounts payable declined by $1,261,933 due to the seasonally cycle of payments to inventory suppliers. Accrued liabilities declined by $483,985. Litigation reserve declined by $6,661 as differences in interest rates resulted in a reduction in the amount reserved.
As of November 30, 2013, accounts receivable and inventory represented 54% of current assets and 48% of total assets. For the three months ended November 30, 2013, the accounts receivable collection period, or DSO, was 25 compared to 26 for the three months ended November 30, 2012. Inventory turnover for the three months ended November 30, 2013 was 125 days compared to 80 days for the three months ended November 30, 2012.
External sources of liquidity include a line of credit from U.S. Bank of $5,000,000. As of November 30, 2013, the Company had no borrowing balance leaving the entire amount available. Borrowing under the line of credit is secured by an assignment of accounts receivable and inventory. The interest rate is calculated solely on the one month LIBOR rate plus 200 basis points. As of November 30, 2013 the one month LIBOR rate plus 200 basis points was 2.17% (0.17% + 2.00%). The line of credit has certain financial covenants. The Company is in compliance with these covenants.
- 23 -
The Company has been utilizing its cash position by repurchasing common shares under 10b5-1 plans in order to increase shareholder value. On August 17, 2012, the Board of Directors had authorized a new Rule 10b-18 share repurchase plan to purchase for cancellation up to 800,000 common shares through facilities of NASDAQ. This share repurchase plan commenced on August 20, 2012 and terminated on March 15, 2013. During the fiscal year ended August 31, 2013, a total of 814 common shares were repurchased under this plan. The total cost of the shares acquired was $4,884 at an average price of $6.00 per share. On May 29, 2013, the Company announced the Board of Directors had authorized a new Rule 10b-18 share repurchase plan to purchase for cancellation up to 400,000 common shares through the facilities of NASDAQ. This share repurchase plan commenced on June 3, 2013 and terminated on August 16, 2013. During the fiscal year ended August 31, 2013, a total of 192 common shares were repurchased under this plan. The total cost of the shares acquired was $2,304 at an average price of $12.00 per share.
Business Risks
This quarterly report includes forwardlooking 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 managements 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 stockholders relative percentage interest in our company.
Our shareholders could experience significant dilution if we issue our authorized 10,000,000 preferred shares.
The Companys common shares currently trade within the NASDAQ Capital Market in the United States. The common shares also formerly traded on the Toronto Stock Exchange (TSX) in Canada until the Company voluntarily delisted from the TSX on October 11, 2012. The average daily trading volume of our common stock on NASDAQ was 7,922 shares for the three months ended November 30, 2013. With this limited trading volume, investors could find it difficult to purchase or sell our common stock.
Risks Related to Our Business
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.
- 24 -
If our top customers were lost, we could experience lower sales volumes.
For the three months ended November 30, 2013, our top ten customers represented 69% 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 in the U.S., Canada and Mexico and are primarily in the marine, and retail home improvement 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.
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 $5,000,000, of which $5,000,000 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.
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, 2013. 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 3.
Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
The Company does not have any derivative financial instruments as of November 30, 2013. However, the Company is exposed to interest rate risk.
The Companys interest income and expense are most sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Companys cash as well as interest paid on debt.
The Company has a line of credit whose interest rate may fluctuate over time based on economic changes in the environment. The Company is subject to interest rate risk and could be subject to increased interest payments if market interest rates fluctuate. The Company does not expect any change in the interest rates to have a material adverse effect on the Companys 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 Companys purchasing costs.
Item 4.
Controls and Procedures
Disclosure Controls and Procedures
Management of the Company, including the Chief Executive Officer and the Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized and reported in a timely manner, and (2) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting that occurred during the Companys most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
Part II OTHER INFORMATION
Item 1.
Legal Proceedings
a)
One of our subsidiaries was a plaintiff in a lawsuit filed in Portland, Oregon, entitled, Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc. et al., Case No. 05-02553 (Multnomah County Circuit Court).
During fiscal 2002 the Company entered into a purchase agreement to acquire inventory over a 15 month period with an initial estimated value of $7,000,000 from Greenwood Forest Products, Inc. During the year ended August 31, 2003, the Company completed the final phase of the inventory acquisition. As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased. The Company believes it overpaid the obligation by approximately $820,000. The holder counterclaimed for approximately $2,400,000.
Litigation was completed on March 5, 2007 with the courts general judgment and money award. The net effect was a money judgment in favor of Greenwood Forest Products, Inc. for $242,604 and an award of contested intellectual property rights to the Company. The Company accrued reserves to cover the money judgment related to this dispute. Both parties filed appeals for review of the courts opinion.
During the 1st quarter of fiscal 2011, the Oregon Court of Appeals ruled that the judgment in favor of Jewett Cameron as plaintiffs should be reversed and the judgment in favor of defendants should stand. The judgment in favor of the Company was for $819,000 plus attorneys fees. The judgment against plaintiffs was for $1,187,137. The Company appealed the ruling to the Oregon Supreme Court. In addition to the previously accrued litigation reserve of $225,000, the Company recorded a litigation loss of $962,137 and interest of $440,778 during the year ended August 31, 2011 related to the judgment. In the first quarter of fiscal 2012 ended November 30, 2011, the Company recorded additional interest of $16,204.
In February 2012, the Company received the decision from the Oregon Supreme Court which was favorable to Jewett Cameron as plaintiff. As a result, the Company has reversed $1,459,832 of the litigation reserve and accrued interest during the 2nd quarter of fiscal 2012 ended February 29, 2012. The reversal was treated as a one-time gain during the quarter.
During the year ended August 31, 2013, the Company recorded $26,716 of interest income due to the favourable difference in interest rates between the judgments. During the first quarter of fiscal 2014 ended November 30, 2013, the Company recorded $6,661 of interest income.
b)
In January 2013, the Company's subsidiary JC USA Inc. (formerly Jewett-Cameron Lumber Corporation) reached a settlement with the State of Oregon Department of Transportation in the Circuit Court of the State of Oregon for Washington County, Case No. C122901CV. Under the settlement agreement, the Company agreed to sell approximately 1.64 acres of land to the Department of Transportation for $410,000. The land had a cost basis of $56,148, and the Company recorded a gain on sale of property plant and equipment of $353,852 during the fiscal year ended August 31, 2013.
The Company does not know of any other material, active or pending legal proceedings against them; nor is the Company involved as a plaintiff in any other material proceeding or pending litigation. The Company knows of no other active or pending proceedings against anyone that might materially adversely affect an interest of the Company.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
---No Disclosure Required---
Item 3.
Defaults Upon Senior Securities
---No Disclosure Required---
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Item 4. Mine Safety Disclosures
---No Disclosure Required---
Item 5.
Other Information
---No Disclosure Required---
Item 6.
Exhibits
3.1
Amended and Restated Articles of Incorporation of Jewett-Cameron Lumber Corporation
3.2
Articles of Incorporation of Jewett-Cameron Company.
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Donald M. Boone
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Murray G. Smith.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Donald M. Boone
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Murray G. Smith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Jewett-Cameron Trading Company Ltd.
(Registrant)
January 13, 2014
/s/ "Donald M. Boone"
Donald M. Boone, President/CEO/Director
January 13, 2014
/s/ "Murray G. Smith"
Murray G. Smith, Chief Financial Officer
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AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
THE JEWETT-CAMERON LUMBER CORPORATION
The aforesaid The Jewett-Cameron Lumber Corporation hereby adopts the following Restated Articles of Incorporation under the Oregon Business Corporation Act ("Act"):
ARTICLE I
The name of this corporation (the "Corporation") is JC USA Inc. and its duration shall be perpetual.
ARTICLE II
The purpose for which the Corporation is organized is to engage in any lawful activities for which corporations may be organized under the Act. The Corporation shall have the authority to engage in any and all such activities as are incidental or conducive to the attainment of the purposes of the Corporation and to exercise any and all powers authorized or permitted under any laws that may be now or hereafter applicable or available to the Corporation.
ARTICLE III
1.
The aggregate number of shares which the Corporation shall have authority to issue is Two Thousand (2,000) common voting shares with no par value.
2.
No shareholder shall have preferential or preemptive rights to acquire shares of the Corporation.
3.
No shareholder shall be entitled to cumulate his or her votes for election of directors.
4.
At any meeting of the shareholders, the holders of a majority of all the outstanding voting shares of capital stock of the Corporation, present in person or represented by proxy, shall constitute a quorum of the shareholders for all purposes.
5.
The Corporation shall have the right to purchase its own shares as provided by the Act.
ARTICLE IV
Action required or permitted by the Act or these Restated Articles of Incorporation to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by shareholders having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all shareholders entitled to vote on the action were present and voted.
ARTICLE V
The address of the registered office of the Corporation is 32275 NW Hillcrest, North Plains, Oregon 97133, and the name of its registered agent at such address is Donald M. Boone.
ARTICLE VI
1.
The number of directors of the Corporation shall be fixed by the bylaws of the Corporation.
2.
Vacancies in the board of directors may be filled by the affirmative vote of the remaining directors even though less than a quorum. All other requirements for filling such vacancies shall be established by the bylaws of the Corporation.
3.
All or any number of the directors may be removed, with or without cause, at a meeting expressly called for that purpose by a vote of the holders of a majority of the shares then entitled to vote at an election of directors.
ARTICLE VII
Contracts or transactions of the Corporation with an interested director or officer shall be valid as provided by the Act. The presence of an interested director shall count toward a quorum and he or she may vote in favor of the transaction.
ARTICLE VIII
1.
The Corporation shall indemnify, to the fullest extent provided in the Act, any director or officer who was or is a party or is threatened to be made a party to any proceeding by reason of or arising from the fact that he is or was a director or officer of the Corporation. The determination and authorization of indemnification shall be made as provided in the Act.
2.
The Corporation shall pay for or reimburse the reasonable expenses incurred by a director or officer who is a party to a proceeding in advance of final disposition of the proceeding as provided in the Act.
3.
The indemnification rights provided for in this Article shall be deemed to be in addition to and not in lieu of any other rights to which those indemnified may be entitled under any statute, rule of law or equity, agreement, vote of the shareholders or board of directors or otherwise.
ARTICLE IX
The liability of the directors of the Corporation for monetary damages for conduct as a director shall be eliminated to the fullest extent permissible under the Act, except that this provision shall not eliminate or limit the liability of a director for:
1.
Any breach of the director's duty of loyalty to the Corporation or its shareholders;
2.
Acts of omission not in good faith or which involve intentional misconduct or a knowing violation of law;
3.
Any unlawful distribution under Oregon Revised Statutes Section 60.367; or
4.
Any transaction from which the director derives an improper personal benefit.
ARTICLE X
These Restated Articles of Incorporation shall be effective as of September 1, 2013.
ARTICLES OF INCORPORATION
OF
JEWETT-CAMERON COMPANY
The undersigned natural person of the age of eighteen (18) years or more, acting as an incorporator under the Oregon Business Corporation Act ("Act"), adopts the following Articles of Incorporation:
ARTICLE I
The name of this corporation (the "Corporation") is Jewett-Cameron Company and its duration shall be perpetual.
ARTICLE II
The purpose for which the Corporation is organized is to engage in any lawful activities for which corporations may be organized under the Act. The Corporation shall have the authority to engage in any and all such activities as are incidental or conducive to the attainment of the purposes of the Corporation and to exercise any and all powers authorized or permitted under any laws that may be now or hereafter applicable or available to the Corporation.
ARTICLE III
1.
The aggregate number of shares which the Corporation shall have authority to issue is Two Thousand (2,000) common voting shares with no par value.
2.
No shareholder shall have preferential or preemptive rights to acquire shares of the Corporation.
3.
No shareholder shall be entitled to cumulate his or her votes for election of directors.
4.
At any meeting of the shareholders, the holders of a majority of all the outstanding voting shares of capital stock of the Corporation, present in person or represented by proxy, shall constitute a quorum of the shareholders for all purposes.
5.
The Corporation shall have the right to purchase its own shares as provided by the Act.
ARTICLE IV
Action required or permitted by the Act or these Articles of Incorporation to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by shareholders having not less than the minimum number of votes that would be necessary to take such action at a meeting at which all shareholders entitled to vote on the action were present and voted.
ARTICLE V
The address of the initial registered office of the Corporation is 32275 NW Hillcrest, North Plains, Oregon 97133, and the name of its initial registered agent at such address is Donald M. Boone.
ARTICLE VI
1.
The number of directors of the corporation shall be fixed by the bylaws of the Corporation.
2.
Vacancies in the board of directors may be filled by the affirmative vote of the remaining directors even though less than a quorum. All other requirements for filling such vacancies shall be established by the bylaws of the Corporation.
3.
All or any number of the directors may be removed, with or without cause, at a meeting expressly called for that purpose by a vote of the holders of a majority of the shares then entitled to vote at an election of directors.
ARTICLE VII
Contracts or transactions of the Corporation with an interested director or officer shall be valid as provided by the Act. The presence of an interested director shall count toward a quorum and he or she may vote in favor of the transaction.
ARTICLE VIII
1.
The Corporation shall indemnify, to the fullest extent provided in the Act, any director or officer who was or is a party or is threatened to be made a party to any proceeding by reason of or arising from the fact that he is or was a director or officer of the Corporation. The determination and authorization of indemnification shall be made as provided in the Act.
2.
The Corporation shall pay for or reimburse the reasonable expenses incurred by a director or officer who is a party to a proceeding in advance of final disposition of the proceeding as provided in the Act.
3.
The indemnification rights provided for in this Article shall be deemed to be in addition to and not in lieu of any other rights to which those indemnified may be entitled under, any statute, rule of law or equity, agreement, vote of the shareholders or board of directors or otherwise.
ARTICLE IX
The liability of the directors of the Corporation for monetary damages for conduct as a director shall be eliminated to the fullest extent permissible under the Act, except that this provision shall not eliminate or limit the liability of a director for:
1.
Any breach of the director's duty of loyalty to the Corporation or its shareholders;
2.
Acts of omission not in good faith or which involve intentional misconduct or a knowing violation of law;
3.
Any unlawful distribution under Oregon Revised Statutes Section 60.367; or
4.
Any transaction from which the director derives an improper personal benefit.
ARTICLE X
The name and address of the person to whom the Corporation Division may mail notices required by the Act is:
Name | Address |
|
|
Donald M. Boone | PO Box 1010 North Plains, Oregon 97133 |
ARTICLE XI
The name and address of the incorporator is:
Name | Address |
|
|
Ryan D. Maughn | 1300 SW Fifth Avenue, Suite 2400 Portland, OR 97201 |
ARTICLE XII
These Articles of Incorporation shall be effective as of September 1, 2013.
ARTICLE XIII
I, the undersigned incorporator, declare that I have examined the foregoing and to the best of my knowledge and belief, it is true, correct and complete.
The person to contact about this filing is:
Name | Telephone Number |
|
|
Ryan D. Maughn | 503-241-2300 |
CERTIFICATIONS
I, Donald M. Boone, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Jewett Cameron Trading Company Ltd;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date:
January 13, 2014
By:
/s/ Donald M. Boone
Donald M. Boone,
Chief Executive Officer
CERTIFICATIONS
I, Murray G. Smith, certify that:
1.
I have reviewed this Quarterly Report on Form 10-Q of Jewett Cameron Trading Company Ltd;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date:
January 13, 2014
By:
/s/ Murray G. Smith
Murray G. Smith,
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Jewett-Cameron Trading Company Ltd. (the Company) on Form 10-Q for the period ended November 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company does hereby certify, to such officers knowledge, that, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 13, 2014 | Signed: /s/ Donald M. Boone |
| Donald M. Boone, President and CEO |
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Jewett-Cameron Trading Company Ltd. (the Company) on Form 10-Q for the period ended November 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company does hereby certify, to such officers knowledge, that, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: January 13, 2014 | Signed: /s/ Murray G, Smith |
| Murray G. Smith, Chief Financial Officer |