Jewett-Cameron Trading pany .(JCTCF) - 2019 Q4 - Annual Report

PART I ITEM 1. BUSINESS The company operates four segments, experiencing a 16% sales decrease in fiscal 2019 due to weather, tariffs, and the closure of its MSI division - The Company's operations are classified into four reportable segments: Industrial wood products (Greenwood), Lawn, garden, pet and other (JCC), Seed processing and sales (JCSC), and Industrial tools and clamps (MSI)[14][21][87] Total Company Sales (Fiscal Years 2018-2019) | Fiscal Year | Sales (Millions USD) | | :---------- | :------------------- | | 2019 | $45.4 | | 2018 | $53.9 | - The MSI-Pro division was permanently closed in September 2019 due to unsuccessful efforts to drive sales and margin growth, lack of market differentiation, and changing customer patterns. Remaining inventory will be liquidated, and personnel will be reassigned[31][47] - The Company's metal products, manufactured in China, were subject to USTR tariffs (initially 10%, increased to 25% as of May 10, 2019). However, in September 2019, most imported products were excepted from tariff treatment moving forward[48][49] Customer Concentration (Fiscal Years 2018-2019) | Customer Group | FY2019 (% of Total Sales) | FY2018 (% of Total Sales) | | :------------- | :------------------------ | :------------------------ | | Top Ten | 77% | 85% | | Single Largest | 33% | 38% | Employee Count by Segment (August 31, 2019) | Segment | Full-time Employees | | :----------- | :------------------ | | Greenwood | 1 | | JCC | 30 | | JCSC | 8 | | MSI | 2 | | JC USA | 17 | | Total | 58 | Forward-Looking Statements - This Annual Report contains forward-looking statements, identified by words like 'plans', 'expects', 'believes', 'projects', 'anticipates', 'intends', 'estimates', 'will', 'should', 'could', which are based on management's current expectations and assumptions[12] - Actual outcomes may differ materially due to global political, economic, business, competitive, market, regulatory, and other factors, including high competition and potential need for additional financing[12][13] Introduction - Jewett-Cameron Trading Company Ltd. is a British Columbia, Canada-organized company with operations classified into four reportable segments[14] - The company's principal office is in North Plains, Oregon, and its fiscal year ends on August 31st[20][24] General Development of Business - Jewett-Cameron Trading Company Ltd. was incorporated in 1987 as a holding company for Jewett-Cameron Lumber Corporation (JCLC), which was later reorganized into JC USA Inc. with four wholly-owned subsidiaries: MSI-PRO Co., Jewett-Cameron Seed Company, Greenwood Products, Inc., and Jewett-Cameron Company[25] - Donald M. Boone, Chairman and Co-Founder, passed away in May 2019. He served as President and CEO from 1984 to 2017 and oversaw the integration of new management[26][30] - In September 2019, the Board decided to permanently close the MSI-Pro division due to a lack of market differentiation and changing customer patterns[31] Narrative Description of Business - The Company's operations are classified into four segments: Lawn, Garden, Pet and Other (JCC), Industrial Wood Products (Greenwood), Seed Processing and Sales (JCSC), and Industrial Tools and Clamps (MSI)[32] - JCC manufactures and distributes specialty metal products (e.g., pet enclosures, gate support systems, greenhouses under brands like Lucky Dog, Adjust-A-Gate) and wholesales wood products (fencing). It holds patents for products like Adjust-A-Gate, providing a competitive advantage[34][37][38] - Greenwood is a wholesale distributor of specialty wood products, primarily treated plywood for the transportation industry. Its sales were 9% and 8% of total Company sales for fiscal 2019 and 2018, respectively[40] - JCSC processes and distributes agricultural seed, with sales primarily to distributors. Sales are seasonal and affected by weather patterns[43] - MSI imports and distributes pneumatic air tools, industrial clamps, and saw blades under brands like MSI-Pro, Avenger, and ProMax, primarily to wholesalers. The division was closed in September 2019[45][46][47] ITEM 1A. RISK FACTORS The company faces risks from shareholder dilution, decreased demand, customer loss, supply chain issues, tariffs, cybersecurity threats, and the need for effective internal controls - Future acquisitions or business combinations, potentially paid for with common stock, could dilute current shareholders' ownership[53] - The Company's common stock has limited trading volume (average daily trading volume of 5,275 shares on NASDAQ for FY2019), which could make it difficult for investors to buy or sell shares[56] - A significant decrease in product demand could result from increased competition, general economic conditions, or changes in consumer preferences[57] - Loss of top customers (top ten represented 77% of sales in FY2019, single largest 33%) would lead to a significant decrease in sales and profitability[58] - Governmental actions, such as tariffs on foreign-sourced products (e.g., from China), can increase product costs, reduce margins, and decrease competitiveness, negatively impacting business[60] - Information technology systems are susceptible to cyber security breaches and other failures, which could adversely impact operations and financial condition[62] - Failure to maintain effective internal controls could lead to undetected fraud or inaccurate financial reporting, potentially harming the business and subjecting it to regulatory scrutiny[63] ITEM 1B. UNRESOLVED STAFF COMMENTS The Company has no unresolved staff comments to disclose - No disclosure necessary for unresolved staff comments[65] ITEM 2. PROPERTIES The Company owns its executive offices and primary distribution center in North Plains, Oregon, and a seed processing facility, having sold a 7.5-acre property in fiscal 2019 and planning future expansions - The Company's executive offices and a distribution center for JCC, Greenwood, and MSI are located at an owned 5.6-acre facility in North Plains, Oregon, with 55,250 square feet of covered space, including a 12,000 sq ft warehouse expansion completed in fiscal 2017[65] - JCSC operates from an owned 11.7-acre facility adjacent to North Plains, Oregon, used for seed processing and storage[66] - In fiscal 2019, the Company sold a 7.5-acre property in Manning, Oregon, for $325,000 cash, which was acquired in 2012 for $250,000[29][67] - The company is planning an expansion within current building spaces, likely to launch in early calendar 2020, due to office and employee growth exceeding existing capacity[67] ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in a product liability lawsuit in Pennsylvania, which is in early stages, and intends to vigorously defend the claim with insurer coverage - The Company is a named defendant in a Civil Action in Pennsylvania for product liability, stemming from a dog allegedly escaping a Jewett-Cameron kennel product and causing personal injuries[68][217] - The matter is in its early stages, making the outcome speculative, but the Company intends to vigorously defend the lawsuit, with its liability insurer providing defense coverage[68][217] ITEM 4. MINE SAFETY DISCLOSURES The Company has no mine safety disclosures to report - No disclosure necessary for mine safety[69] PART II ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company's common shares trade on NASDAQ, underwent a two-for-one stock split in May 2018, and the company retains earnings for operations, expansion, and significant share repurchases in fiscal 2018 and 2019 - The Company's common shares trade on the NASDAQ Capital Market under the symbol "JCTCF"[70] - A two-for-one stock split of common stock was declared with a record date of May 22, 2018, and was effective May 29, 2018[71] Common Shares Trading Activity (Annual, US Dollars) | Period Ended | Volume | High | Low | Closing | | :----------- | :-------- | :------ | :---- | :------ | | 8/31/19 | 1,318,200 | $10.00 | $6.23 | $8.04 | | 8/31/18 | 1,252,600 | $8.96 | $6.50 | $8.68 | | 8/31/17 | 1,237,400 | $7.23 | $5.30 | $6.98 | - As of October 24, 2019, there were 15 registered shareholders and 3,971,282 common shares outstanding[75] - The Company has not declared any dividends since incorporation and plans to retain earnings for operations, business expansion, and share repurchases[76] Common Share Repurchases (Fiscal Years 2018-2019) | Fiscal Year | Shares Repurchased | Total Cost | Average Price Per Share | | :---------- | :----------------- | :----------- | :---------------------- | | 2019 | 345,671 | $3,061,441 | $8.86 | | 2018 | 154,329 | $1,271,599 | $8.24 | ITEM 6. SELECTED FINANCIAL DATA As a Smaller Reporting Company, Jewett-Cameron Trading Company Ltd. is not required to provide selected financial data in this section - No disclosure necessary for Smaller Reporting Companies[85] ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Fiscal 2019 performance was negatively impacted by adverse weather and tariffs, leading to a 16% sales decrease and lower net income, despite improved gross margin and ongoing strategic initiatives including new product development, ERP implementation, and the MSI division closure - Fiscal 2019 sales and income declined primarily due to extremely wet weather across North America, delaying outdoor merchandise purchases, and increased US tariffs on Chinese manufactured goods[89] Key Financial Results (Fiscal Years 2018-2019) | Metric | FY2019 (USD) | FY2018 (USD) | Change (%) | | :--------------------- | :------------- | :------------- | :--------- | | Sales | $45,446,362 | $53,923,152 | -16% | | Gross Profit | $9,964,431 | $11,597,814 | -14.1% | | Gross Margin | 21.9% | 21.5% | +0.4 pp | | Income from Operations | $2,737,550 | $4,276,419 | -35.9% | | Net Income | $2,100,452 | $2,920,639 | -28.1% | | Basic EPS | $0.50 | $0.66 | -24.2% | | Diluted EPS | $0.50 | $0.66 | -24.2% | - The Company received notice post-FY2019 that many of its metal products would be reclassified and no longer subject to 25% tariffs on imported Chinese goods, which should help maintain competitiveness[90][107] - New products are being developed, including the patented LIFETIME POST™ for fencing, and the Company is building product development capabilities and adding personnel for marketing and sales initiatives[91][92][93] - A new Enterprise Resource Planning (ERP) system is being implemented to streamline inventory management, distribution, and automate customer interfaces, supporting future growth[94] - The MSI division was permanently closed in September 2019 due to stagnant growth and operating losses, while the Company remains committed to improving the JCSC seed business[95] - The Company sold its surplus Manning property in fiscal 2019 for $324,675, realizing a gain of $105,365[96] - Management plans to focus on promoting the Jewett-Cameron brand and broadening product presence across more channels (retailers, e-commerce, international) in fiscal 2020[97] - The Company's cash position remains strong at $9,652,310 as of August 31, 2019, and it continues to use excess cash for common share repurchases[99] Quarterly Results Quarterly Financial Results (Fiscal 2019) | Metric | Q1 2019 (USD) | Q2 2019 (USD) | Q3 2019 (USD) | Q4 2019 (USD) | Full Year 2019 (USD) | | :----------------- | :------------ | :------------ | :------------ | :------------ | :------------------- | | Sales | $9,066 | $7,857 | $16,692 | $11,831 | $45,446 | | Gross profit | $2,309 | $1,761 | $3,638 | $2,256 | $9,964 | | Net income | $350 | $120 | $1,098 | $532 | $2,100 | | Basic EPS | $0.08 | $0.03 | $0.26 | $0.13 | $0.50 | | Diluted EPS | $0.08 | $0.03 | $0.26 | $0.13 | $0.50 | Quarterly Financial Results (Fiscal 2018) | Metric | Q1 2018 (USD) | Q2 2018 (USD) | Q3 2018 (USD) | Q4 2018 (USD) | Full Year 2018 (USD) | | :----------------- | :------------ | :------------ | :------------ | :------------ | :------------------- | | Sales | $9,414 | $13,341 | $19,935 | $11,233 | $53,923 | | Gross profit | $2,187 | $2,636 | $3,990 | $2,785 | $11,598 | | Net income | $322 | $508 | $1,389 | $702 | $2,921 | | Basic EPS | $0.07 | $0.12 | $0.31 | $0.16 | $0.66 | | Diluted EPS | $0.07 | $0.12 | $0.31 | $0.16 | $0.66 | RESULTS OF OPERATIONS - Sales at JCC decreased to $38.5 million in fiscal 2019 from $47.2 million in fiscal 2018, an 18.4% decline, primarily due to extended wet weather affecting lawn and garden product demand and lower demand for metal products due to tariff uncertainty[104] JCC Sales Breakdown (Fiscal Years 2018-2019) | Fiscal Year | Metal Sales (Millions USD) | Wood Sales (Millions USD) | Total Sales (Millions USD) | Metal (% of Total) | Wood (% of Total) | | :---------- | :------------------------- | :------------------------ | :------------------------- | :----------------- | :---------------- | | 2019 | $26.4 | $12.1 | $38.5 | 69% | 31% | | 2018 | $32.5 | $14.7 | $47.2 | 69% | 31% | - Greenwood's sales increased by 12% to $3.9 million in fiscal 2019 from $3.5 million in fiscal 2018, with operating income rising significantly from $494 to $71,192 due to refined product mix and direct sales to end users[108] - JCSC's sales decreased by 2% to $2.23 million in fiscal 2019 from $2.28 million in fiscal 2018, resulting in an increased operating loss of $222,191 compared to $58,438 in the prior year, mainly due to poor weather affecting planting schedules[109] - MSI's sales decreased by 16% to $792,626 in fiscal 2019 from $942,861 in fiscal 2018, and its operating loss increased to $159,914 from $72,417, leading to the decision to permanently close the division[110] - JC USA, the corporate holding company, saw its operating income increase to $1,158,426 in fiscal 2019 from $757,317 in fiscal 2018, driven by higher rental and administrative fees charged to subsidiaries[111] LIQUIDITY AND CAPITAL RESOURCES Working Capital and Current Ratio (August 31, 2018-2019) | Metric | August 31, 2019 (USD) | August 31, 2018 (USD) | Change (USD) | | :------------ | :-------------------- | :-------------------- | :----------- | | Working Capital | $17,761,616 | $18,346,414 | -$584,798 | | Current Ratio | 11.3 | 9.4 | +1.9 | - Cash and cash equivalents increased by $3,554,847 to $9,652,310 in fiscal 2019, while inventory decreased by $3,425,392 as management reduced excess stock[112] Accounts Receivable Collection Period and Inventory Turnover (Fiscal Years 2018-2019) | Metric | FY2019 | FY2018 | | :----------------- | :----- | :----- | | DSO (days) | 23 | 28 | | Inventory Turnover | 83 | 80 | - The Company repurchased 345,671 common shares for $3,061,441 in fiscal 2019 and 154,329 shares for $1,271,599 in fiscal 2018 to increase shareholder value[115] - The Company has adequate working capital and a $3 million available line of credit from U.S. Bank to meet its needs for the coming fiscal year[116][117] OTHER MATTERS - The Company currently has no contractual obligations or commercial commitments[118] - Inflation did not have a material impact in fiscal 2019 or 2018, as the Company typically passes price increases on to customers[119] - Management makes judgments, estimates, and assumptions for financial reporting, regularly evaluating them based on historical experience and reasonable assumptions[120] - The Company adopted ASU No. 2014-09 (Revenue from Contracts with Customers) and ASU No. 2016-18 (Restricted Cash) effective September 1, 2018, with no material impact on financial statements[180][183] - The Company is evaluating the impact of ASU No. 2016-13 (Financial Instruments – Credit Losses), effective for fiscal years beginning after December 31, 2019[182] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company faces interest rate risk from its variable-rate line of credit and minimal foreign currency risk, primarily influencing purchasing costs from Chinese manufacturers - The Company does not use derivative financial instruments for trading purposes[123] - Interest rate risk exists due to a variable interest rate line of credit (LIBOR plus 175 basis points), but the Company does not expect a material adverse effect from interest rate fluctuations[117][124] - Foreign currency risk is limited as the Company primarily operates in the United States, but exchange rates can influence purchasing costs from Chinese contract manufacturers[125] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA This section presents audited consolidated financial statements for fiscal years 2019 and 2018, including balance sheets, statements of operations, stockholders' equity, and cash flows, with an unqualified auditor opinion and detailed notes on accounting policies and financial items - The consolidated financial statements for fiscal years 2019 and 2018 were audited by Davidson & Company, LLP, who issued an unqualified opinion[130] Consolidated Balance Sheet Highlights (August 31, 2018-2019) | Metric | August 31, 2019 (USD) | August 31, 2018 (USD) | | :---------------------- | :-------------------- | :-------------------- | | Total Current Assets | $19,484,223 | $20,518,713 | | Total Assets | $22,214,677 | $23,627,563 | | Total Current Liabilities | $1,722,607 | $2,172,299 | | Total Liabilities | $1,783,811 | $2,254,152 | | Total Stockholders' Equity | $20,430,866 | $21,373,411 | Consolidated Statements of Operations Highlights (Fiscal Years 2018-2019) | Metric | FY2019 (USD) | FY2018 (USD) | | :----------------- | :------------- | :------------- | | Sales | $45,446,362 | $53,923,152 | | Gross Profit | $9,964,431 | $11,597,814 | | Income from Operations | $2,737,550 | $4,276,419 | | Net Income | $2,100,452 | $2,920,639 | | Basic EPS | $0.50 | $0.66 | | Diluted EPS | $0.50 | $0.66 | Consolidated Statements of Cash Flows Highlights (Fiscal Years 2018-2019) | Metric | FY2019 (USD) | FY2018 (USD) | | :------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $6,305,901 | $1,566,340 |\ | Net cash used in investing activities | $291,943 | -$109,528 |\ | Net cash used in financing activities | -$3,042,997 | -$1,271,599 |\ | Net increase in cash | $3,554,847 | $185,213 |\ | Cash, end of year | $9,652,310 | $6,097,463 | Report of Independent Registered Public Accounting Firm - Davidson & Company LLP, the independent auditor since 2002, issued an unqualified opinion on the consolidated financial statements for August 31, 2019 and 2018, stating they present fairly the financial position and results of operations in conformity with US GAAP[130][134] Consolidated Balance Sheets Consolidated Balance Sheets (August 31, 2018-2019) | ASSETS | August 31, 2019 (USD) | August 31, 2018 (USD) | | :---------------------- | :-------------------- | :-------------------- | | Cash and cash equivalents | $9,652,310 | $6,097,463 | | Accounts receivable, net | $2,835,952 | $4,152,492 | | Inventory, net | $6,377,805 | $9,803,197 | | Total current assets | $19,484,223 | $20,518,713 | | Property, plant and equipment, net | $2,727,406 | $3,105,260 | | Intangible assets, net | $3,048 | $3,590 | | Total assets | $22,214,677 | $23,627,563 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $410,027 | $377,092 | | Accrued liabilities | $1,312,580 | $1,795,207 | | Total current liabilities | $1,722,607 | $2,172,299 | | Deferred tax liability | $61,204 | $81,853 | | Total liabilities | $1,783,811 | $2,254,152 | | Capital stock | $936,903 | $1,017,908 | | Additional paid-in capital | $618,707 | $600,804 | | Retained earnings | $18,875,256 | $19,754,699 | | Total stockholders' equity | $20,430,866 | $21,373,411 | | Total liabilities and stockholders' equity | $22,214,677 | $23,627,563 | Consolidated Statements of Operations Consolidated Statements of Operations (Fiscal Years 2018-2019) | Metric | FY2019 (USD) | FY2018 (USD) | | :----------------- | :------------- | :------------- | | SALES | $45,446,362 | $53,923,152 | | COST OF SALES | $35,481,931 | $42,325,338 | | GROSS PROFIT | $9,964,431 | $11,597,814 | | OPERATING EXPENSES | $7,226,881 | $7,321,395 | | Income from operations | $2,737,550 | $4,276,419 | | OTHER ITEMS | $150,594 | $3,004 | | Income before income taxes | $2,888,144 | $4,279,423 | | Income taxes | $787,692 | $1,358,784 | | Net income for the year | $2,100,452 | $2,920,639 | | Basic earnings per common share | $0.50 | $0.66 | | Diluted earnings per common share | $0.50 | $0.66 | | Weighted average number of common shares outstanding (Basic) | 4,233,304 | 4,430,940 | | Weighted average number of common shares outstanding (Diluted) | 4,233,304 | 4,430,940 | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity (Years Ended August 31) | Metric | August 31, 2017 (USD) | August 31, 2018 (USD) | August 31, 2019 (USD) | | :------------------------------------ | :-------------------- | :-------------------- | :-------------------- | | Number of Shares | 4,468,988 | 4,314,659 | 3,971,282 | | Capital Stock Amount | $1,054,316 | $1,017,908 | $936,903 | | Additional Paid-in Capital | $600,804 | $600,804 | $618,707 | | Retained Earnings | $18,069,251 | $19,754,699 | $18,875,256 | | Total Stockholders' Equity | $19,724,371 | $21,373,411 | $20,430,866 | | Shares repurchased and cancelled | - | (154,329) | (345,671) | | Net income | - | $2,920,639 | $2,100,452 | | Shares issued pursuant to compensation plans | - | - | 2,294 | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (Years Ended August 31) | Cash Flow Activity | FY2019 (USD) | FY2018 (USD) | | :------------------------------- | :----------- | :----------- | | Net income for the year | $2,100,452 | $2,920,639 | | Depreciation and amortization | $191,819 | $274,065 | | (Gain) loss on sale of property, plant and equipment | -$105,366 | $27,022 | | Deferred income taxes | -$20,649 | $70,509 | | Changes in non-cash working capital items (net) | $4,089,635 | -$1,695,895 | | Net cash provided by operating activities | $6,305,901 | $1,566,340 | | Proceeds on sale of property, plant and equipment | $324,675 | $1,000 | | Purchase of property, plant and equipment | -$32,732 | -$110,528 | | Net cash used in investing activities | $291,943 | -$109,528 | | Issuance of common stock | $18,444 | - | | Redemption of common stock | -$3,061,441 | -$1,271,599 | | Net cash used in financing activities | -$3,042,997 | -$1,271,599 | | Net increase in cash | $3,554,847 | $185,213 | | Cash, beginning of year | $6,097,463 | $5,912,250 | | Cash, end of year | $9,652,310 | $6,097,463 | Notes to the Consolidated Financial Statements - The Company's subsidiaries (JC USA, JCC, MSI, JCSC, Greenwood) are all wholly owned and incorporated in Oregon, U.S.A., with no significant assets in Canada[149] - The Company's financial statements are prepared in conformity with US GAAP and include estimates for useful lives of assets, allowances for doubtful accounts and inventory obsolescence, and litigation contingencies[152][155] Inventory Breakdown (August 31, 2018-2019) | Inventory Category | August 31, 2019 (USD) | August 31, 2018 (USD) | | :---------------------- | :-------------------- | :-------------------- | | Wood products and metal products | $5,833,047 | $9,189,772 | | Industrial tools | $239,280 | $378,163 | | Agricultural seed products | $305,478 | $235,262 | | Total Inventory | $6,377,805 | $9,803,197 | Property, Plant and Equipment, Net (August 31, 2018-2019) | Asset Category | August 31, 2019 (USD) | August 31, 2018 (USD) | | :------------------ | :-------------------- | :-------------------- | | Office equipment | $486,038 | $473,702 | | Warehouse equipment | $1,265,532 | $1,313,714 | | Buildings | $4,072,741 | $4,090,527 | | Land | $559,065 | $761,924 | | Accumulated depreciation | -$3,655,970 | -$3,534,607 | | Net book value | $2,727,406 | $3,105,260 | Income Tax Reconciliation (Fiscal Years 2018-2019) | Item | FY2019 (USD) | FY2018 (USD) | | :---------------------------------- | :----------- | :----------- | | Computed tax at federal statutory rate | $605,466 | $1,083,541 | | State taxes, net of federal benefit | $173,114 | $228,332 | | Depreciation | $920 | -$20,036 | | Inventory reserve | $20,458 | -$22,956 | | Other | $8,383 | $19,394 | | Provision for income taxes | $808,341 | $1,288,275 | | Current income taxes | $808,341 | $1,288,275 | | Deferred income taxes | -$20,649 | $70,509 | | Total Income Taxes | $787,692 | $1,358,784 | - The Company has a $3,000,000 line of credit with U.S. Bank, fully available as of August 31, 2019, secured by accounts receivable and inventory, with an interest rate of one-month LIBOR plus 175 basis points (3.92% as of August 31, 2019)[117][191] - The Company has no stock options outstanding as of August 31, 2019 and 2018[204] - Under the Restricted Share Plan, 2,294 common shares were issued to the CEO in fiscal 2019 as part of his 2018 bonus, valued at $18,444[207] Segment Sales to Unaffiliated Customers (Fiscal Years 2018-2019) | Segment | FY2019 (USD) | FY2018 (USD) | | :------------------------ | :------------- | :------------- | | Industrial wood products | $3,910,117 | $3,500,759 | | Lawn, garden, pet and other | $38,510,213 | $47,197,251 | | Seed processing and sales | $2,233,406 | $2,282,281 | | Industrial tools and clamps | $792,626 | $942,861 | | Total Sales | $45,446,362| $53,923,152| Segment Income (Loss) Before Income Taxes (Fiscal Years 2018-2019) | Segment | FY2019 (USD) | FY2018 (USD) | | :------------------------ | :------------- | :------------- | | Industrial wood products | $71,192 | $494 | | Lawn, garden, pet and other | $2,040,631 | $3,652,467 | | Seed processing and sales | -$222,191 | -$58,438 | | Industrial tools and clamps | -$159,914 | -$72,417 | | Corporate and administrative | $1,158,426 | $757,317 | | Total | $2,888,144 | $4,279,423 | Sales by Country (Fiscal Years 2018-2019) | Country | FY2019 (USD) | FY2018 (USD) | | :----------------------- | :------------- | :------------- | | United States | $43,894,726 | $52,050,260 | | Canada | $1,243,239 | $1,429,265 | | Mexico/Latin America/Caribbean | $180,664 | $192,539 | | Europe | $43,851 | $42,224 | | Asia/Pacific | $83,882 | $196,655 | | Middle East | - | $12,209 | | Total | $45,446,362| $53,923,152| - The Company has credit risk concentration with two customers accounting for 56% of total accounts receivable at August 31, 2019, and volume of business concentration with two suppliers accounting for $17,745,475 of total purchases in fiscal 2019[214][215] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company reports no changes in or disagreements with accountants on accounting and financial disclosure - No disclosure necessary for changes in and disagreements with accountants on accounting and financial disclosure[222] ITEM 9A. CONTROLS AND PROCEDURES Management concluded that the Company's disclosure controls and internal control over financial reporting were effective as of August 31, 2019, with no material changes during the fiscal year - Management concluded that the Company's disclosure controls and procedures were effective as of August 31, 2019, ensuring timely and accurate information reporting[222] - Management assessed and concluded that the internal control over financial reporting was effective as of August 31, 2019, based on the COSO framework[224] - No material changes in internal control over financial reporting occurred during the most recent fiscal year[226] ITEM 9B. OTHER INFORMATION The Company has no other information to disclose in this section - No disclosure necessary for other information[227] PART III ITEM 10. Directors, Executive Officers and Corporate Governance The Board comprises six members, with independent Audit and Compensation Committees, a written code of ethics, and provisions for director and officer indemnification, noting one late Section 16(a) filing Directors (as of November 1, 2019) | Name | Age | Date First Elected/Appointed | | :------------ | :-- | :--------------------------- | | Geoff Guilfoy | 69 | August 2019 | | Charles Hopewell | 63 | February 2017 | | Sarah Johnson | 40 | July 2017 | | Chris Karlin | 58 | December 2018 | | Frank G. Magdlen | 72 | January 2013 | | Michael C. Nasser | 72 | May 2019 | Executive Officers (as of November 1, 2019) | Name | Position | Age | Date of Board Approval | | :-------------- | :--------------------------- | :-- | :--------------------- | | Charles Hopewell | President and Chief Executive Officer | 63 | February 2017 | | Michael C. Nasser | Corporate Secretary | 72 | July 1987 | - Frank G. Magdlen is the designated 'audit committee financial expert' and is independent. The Audit Committee consists of four independent members and met six times in fiscal 2019[241][245] - The Compensation Committee consists of four independent directors and met two times in fiscal 2019[249] - One late Section 16(a) filing was identified for Chris Karlin's initial Form 3[250] - The Company has a written 'code of ethics' meeting Sarbanes-Oxley standards, posted on its website[251] - The Company's articles limit personal liability for board members and require indemnification for directors and officers to the fullest extent permitted by British Columbia law, and liability insurance is maintained[252][253] ITEM 11. EXECUTIVE COMPENSATION Executive compensation for fiscal years 2017-2019 is detailed, including salary, bonus, and 401(k) contributions, with no stock options or long-term incentive plans, and director compensation includes monthly fees and expense reimbursements Executive Compensation (Fiscal Years 2017-2019) | Name, Position | Fiscal Year | Salary (USD) | Bonus (USD) | All Other Comp. (USD) | | :------------------------- | :---------- | :----------- | :---------- | :-------------------- | | Charles Hopewell, President, CEO, PFO | 2019 | $190,000 | $20,000 | $9,000 | | | 2018 | $178,333 | $112,221 | $5,167 | | | 2017 | $134,244 | - | - | | Michael Nasser, Corporate Secretary | 2019 | $177,000 | $70,000 | $9,000 | | | 2018 | $177,000 | $50,000 | $10,000 | | | 2017 | $177,000 | $50,000 | $15,000 | | Donald Boone, Former President, CEO, PFO | 2017 | $9,334 | - | $4,940 | - The Company has a Restricted Share Plan, under which 2,294 common shares were issued in fiscal 2019 (Nil in 2018)[265] - The 401(k) Plan allows for a discretionary contribution based on the first $45,000 of eligible compensation, with a matching contribution added in fiscal 2019. Total 401(k) expense was $295,557 in FY2019 and $363,606 in FY2018[266] - No stock options were granted during fiscal 2019 or 2018, and there were no options outstanding as of August 31, 2019[270] - The Company had no Long-Term Incentive Plan (LTIP) or Defined Benefit/Actuarial Plan during fiscal 2019[271] - Director compensation is $1,000 per month as of January 1, 2019, plus reimbursement for expenses. Cash payments for board meetings in fiscal 2019 included $10,600 for Frank Magdlen and Sarah Johnson, $3,600 for Geoff Guilfoy, and $8,800 for Chris Karlin[273] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS As of November 1, 2019, the Donald Boone Estate Trust is the largest beneficial owner with 31.6% of common stock, and directors and executive officers collectively own 40.3% of the Company's voting stock - The Company is a publicly owned corporation and is not controlled directly or indirectly by another corporation or any foreign government[276] Shareholdings of Directors, Executive Officers, and 5% Shareholders (as of November 1, 2019) | Name of Beneficial Owner | Amount of Beneficial and Voting Ownership | Percent of Class (1) | | :---------------------------- | :---------------------------------------- | :------------------- | | Donald Boone Estate Trust | 1,256,488 | 31.6% | | Michael C. Nasser | 331,888 | 8.4% | | Charles E. Hopewell | 12,294 | 0.3% | | Geoff Guilfoy | Nil | - | | Sarah Johnson | Nil | - | | Chris Karlin | Nil | - | | Frank Magdlen | Nil | - | | Total directors, executive officers, and 5% shareholders | 1,600,670 | 40.3% | (1) Based on 3,971,282 shares outstanding as of November 1, 2019. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The Company reports no material transactions or proposed transactions involving directors, executive officers, or significant beneficial owners and their relatives or affiliates - There have been no material transactions or proposed transactions affecting the Company in which any director, executive officer, or beneficial holder of more than 5% of common stock, or their relatives/affiliates, had a direct or material indirect interest[279] ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The Audit Committee oversees auditor appointment and compensation, pre-approving all services from Davidson & Company, LLP, with total fees of $119,750 in fiscal 2019 and $119,500 in fiscal 2018 for audit, tax, and quarterly review services - The Audit Committee is directly responsible for the appointment, compensation, and oversight of auditors and has the authority to engage independent counsel and other outside advisors[280] - All proposed engagements of Davidson & Company, LLP for audit and permitted non-audit services are submitted to the Audit Committee for pre-approval[282] Principal Accountant Fees and Services (Fiscal Years 2018-2019) | Fees and Services | FY2019 (USD) | FY2018 (USD) | | :---------------- | :----------- | :----------- | | Audit fees | $90,000 | $90,000 | | Tax fees | $5,000 | $4,750 | | All other fees (1)| $24,750 | $24,750 | | Total | $119,750 | $119,500 | (1) All other fees relate to reviews of quarterly Form 10-Q reports. PART IV ITEM 15. Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and a comprehensive array of exhibits, including corporate documents and certifications from the CEO and Principal Financial Officer as required by Sarbanes-Oxley - The report includes financial statements and Schedule II: Valuation and Qualifying Accounts[127][284] - Exhibits include plans of acquisition, articles of incorporation/by-laws, material contracts, and certifications from the CEO and Principal Financial Officer (Section 302 and 906 of Sarbanes-Oxley Act)[284][288] - XBRL Taxonomy Extension documents (Schema, Calculation, Definition, Label, Presentation Linkbase) are also included as exhibits[288]