Jewett-Cameron Trading Co Ltd(JCTC) - 2025 Q3 - Quarterly Report

Part I Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Jewett-Cameron Trading Company Ltd. for the period ended May 31, 2025, including the balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes on the company's operations, significant accounting policies, and specific financial accounts Consolidated Balance Sheets | Metric | May 31, 2025 | August 31, 2024 | | :--------------------------------- | :----------- | :-------------- | | Cash and cash equivalents | $1,204,719 | $4,853,367 | | Accounts receivable, net | $6,789,582 | $3,668,815 | | Inventory, net | $15,257,917 | $13,157,243 | | Total current assets | $24,523,688 | $23,187,463 | | Total assets | $29,238,886 | $27,490,514 | | Total liabilities | $6,209,261 | $2,639,370 | | Total stockholders' equity | $23,029,625 | $24,851,144 | - Total assets increased by $1,748,372 from August 31, 2024, to May 31, 2025, primarily driven by increases in accounts receivable and inventory[10] - Total liabilities significantly increased from $2,639,370 to $6,209,261, mainly due to new bank indebtedness of $2,422,305[10] Consolidated Statements of Operations Three Month Period Ended May 31 | Metric | 2025 | 2024 | | :--------------------------------- | :----------- | :----------- | | Sales | $12,605,344 | $15,896,017 | | Gross Profit | $1,889,007 | $2,951,076 | | Income (loss) from operations | $(687,781) | $55,595 | | Net (loss) income | $(649,634) | $154,862 | | Basic (loss) earnings per common share | $(0.18) | $0.04 | Nine Month Period Ended May 31 | Metric | 2025 | 2024 | | :--------------------------------- | :----------- | :----------- | | Sales | $30,927,295 | $33,931,050 | | Gross Profit | $5,398,617 | $6,971,673 | | Income (loss) from operations | $(2,316,413) | $(1,460,316) | | Net (loss) income | $(1,881,445) | $912,257 | | Basic (loss) earnings per common share | $(0.54) | $0.26 | - The company reported a net loss of $(649,634) for the three months ended May 31, 2025, a significant decline from a net income of $154,862 in the prior year, primarily due to decreased sales and gross profit[11] - For the nine-month period, the company incurred a net loss of $(1,881,445) in 2025, compared to a net income of $912,257 in 2024, driven by lower sales and a substantial increase in operating loss[11] Consolidated Statements of Stockholders' Equity | Metric | August 31, 2023 | May 31, 2024 | August 31, 2024 | May 31, 2025 | | :--------------------------------- | :-------------- | :----------- | :-------------- | :----------- | | Total Stockholders' Equity | $24,097,327 | $25,041,648 | $24,851,144 | $23,029,625 | | Common Shares Outstanding | 3,498,899 | 3,504,802 | 3,504,802 | 3,518,119 | | Net Income (Loss) | | $912,257 | $(190,504) | $(1,881,445) | - Total stockholders' equity decreased from $24,851,144 at August 31, 2024, to $23,029,625 at May 31, 2025, primarily due to a net loss of $(1,881,445) for the nine-month period[13] - The number of common shares outstanding increased by 13,317 shares during the nine months ended May 31, 2025, due to shares issued under compensation plans[13] Consolidated Statements of Cash Flows Nine Month Period Ended May 31 | Metric | 2025 | 2024 | | :--------------------------------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | $(5,978,369) | $2,234,158 | | Net cash used in investing activities | $(92,584) | $(3,891) | | Net cash provided by (used in) financing activities | $2,422,305 | $(1,259,259) | | Net (decrease) increase in cash and cash equivalents | $(3,648,648) | $971,008 | | Cash and cash equivalents, end of period | $1,204,719 | $1,054,704 | - Operating activities used $5,978,369 in cash for the nine months ended May 31, 2025, a significant change from providing $2,234,158 in the prior year, primarily due to the net loss and increases in accounts receivable and inventory[15] - Financing activities provided $2,422,305 in cash in 2025, mainly from proceeds from bank indebtedness, contrasting with cash used in financing activities in 2024[15] Notes to the Consolidated Financial Statements 1. Nature of Operations Jewett-Cameron Trading Company Ltd. is a holding company operating through subsidiaries like JC USA Inc., Jewett-Cameron Company (JCC), and Greenwood Products, Inc. JCC focuses on manufacturing and distributing pet, fencing, and other products, while Greenwood processes and distributes industrial wood products. The seed cleaning operations of Jewett-Cameron Seed Company (JCSC) ceased in August 2023 - JCC's business involves manufacturing and distribution of pet, fencing, and other products to home centers, retailers, online, and direct consumers in the U.S[18] - Greenwood Products processes and distributes industrial wood and specialty building products, primarily to marine and transportation industries[18] - JCSC ended seed cleaning operations in August 2023 and ceased active operations, selling most equipment for wind-up[19] 2. Significant Accounting Policies This section outlines the significant accounting policies used in preparing the consolidated financial statements, including the basis of presentation (US GAAP, unaudited), principles of consolidation, use of estimates, and specific policies for cash and cash equivalents, accounts receivable, inventory, property, plant and equipment, intangibles, asset retirement obligations, impairment of long-lived assets, currency translation, earnings per share, comprehensive income, stock-based compensation, financial instruments, income taxes, shipping and handling costs, and revenue recognition - The financial statements are prepared in conformity with US GAAP for interim financial information and SEC regulations, and are unaudited[21] - Consolidated statements include wholly-owned subsidiaries JC USA, JCC, JCSC, and Greenwood, with all inter-company balances eliminated[22][23] - Revenue is recognized from product sales (lumber, building supply, industrial wood, specialty metal, other specialty products and tools) when products are shipped, title passes, and collection is reasonably assured[47] 3. Inventory The company's inventory primarily consists of finished goods, valued at the lower of cost (average cost method) and market (net realizable value). An allowance for non-saleable inventory is maintained based on excess stock or obsolescence | Inventory Category | May 31, 2025 | August 31, 2024 | | :----------------- | :----------- | :-------------- | | Pet, fencing, and other products | $14,418,442 | $12,407,495 | | Industrial wood products | $839,475 | $749,748 | | Total Inventory | $15,257,917 | $13,157,243 | - Total inventory increased by $2,100,674 from August 31, 2024, to May 31, 2025, with the largest increase in pet, fencing, and other products[49] 4. Property, Plant and Equipment Property, plant, and equipment are recorded at cost less accumulated depreciation. The company reviews long-lived assets for impairment when circumstances indicate the carrying amount may not be recoverable. An 11.6-acre property formerly housing JCSC operations is held for sale | Asset Category | May 31, 2025 | August 31, 2024 | | :--------------- | :----------- | :-------------- | | Office equipment | $681,260 | $668,260 | | Warehouse equipment | $1,466,148 | $1,285,278 | | Buildings | $5,211,588 | $5,211,588 | | Land | $158,500 | $158,500 | | Accumulated depreciation | $(3,815,990) | $(3,473,826) | | Net book value | $3,701,506 | $3,849,800 | - Net book value of property, plant, and equipment decreased by $148,294 from August 31, 2024, to May 31, 2025[50] - An asset held for sale, the former JCSC property, remains at a carrying value of $566,022 as of May 31, 2025[51] 5. Intangible Assets The company's intangible assets have a finite life and are amortized using the straight-line method. They are reviewed annually for impairment | Metric | May 31, 2025 | August 31, 2024 | | :----------------- | :----------- | :-------------- | | Intangible assets | $131,405 | $131,405 | | Accumulated amortization | $(19,808) | $(19,183) | | Net book value | $111,597 | $112,222 | - Net book value of intangible assets slightly decreased from $112,222 to $111,597 due to amortization[52] 6. Deferred Income Taxes Deferred income tax assets and liabilities are recorded for temporary differences between financial and tax reporting, and net operating loss carryforwards. A valuation allowance is applied if realization of deferred tax assets is unlikely | Metric | May 31, 2025 | August 31, 2024 | | :----------------- | :----------- | :-------------- | | Deferred income tax asset | $902,095 | $341,029 | - Deferred income tax assets increased significantly from $341,029 to $902,095, reflecting changes in temporary differences[53] 7. Bank Indebtedness The company has a line of credit agreement with Northrim Funding Services, providing short-term operating capital through purchasing accounts receivable invoices or loans against inventory. The maximum draw is $6,000,000, with an interest rate of prime plus 4.75% (12.25% as of May 31, 2025). This line was renewed in June 2025 and expires on June 30, 2026 - As of May 31, 2025, the company's indebtedness under the Northrim line of credit was $2,422,305, compared to $Nil at August 31, 2024[54] - The maximum amount Northrim will purchase in AR invoices is 80% of eligible accounts, not exceeding $6,000,000[54] - Borrowing against inventory is 25% of eligible inventory, not exceeding $4,000,000, with a total maximum draw of $6,000,000[54] 8. Capital Stock Holders of common stock are entitled to one vote per share. The company has not declared any dividends since incorporation - As of May 31, 2025, 3,518,119 common shares were issued, compared to 3,504,802 at August 31, 2024[10] - The company is authorized to issue 21,567,564 common shares and 10,000,000 preferred shares, both with no par value[10] 9. Restricted Share Plan The company operates a Restricted Share Plan (the "Plan") and a new 2024 Restricted Share Plan, allowing grants of restricted shares to directors, officers, employees, and consultants. Shares are nontransferable during a restricted period but grant voting and dividend rights - In December 2024, 13,317 common shares valued at $59,926 were issued under the Plan to officers, directors, and employees[59][63] - The 2024 Plan reserves 1% of issued and outstanding common shares, totaling 35,181 shares, for future grants[60] - As of May 31, 2025, 2,755 shares remained available under the original Plan[59] 10. Pension and Profit-Sharing Plans The company offers a deferred compensation 401(k) plan for eligible employees, including non-elective discretionary contributions and matching employee contributions 401(k) Compensation Expense | Period | 2025 | 2024 | | :----- | :----------- | :----------- | | Nine-month period ended May 31 | $186,114 | $311,026 | - 401(k) compensation expense decreased by $124,912 for the nine months ended May 31, 2025, compared to the prior year[64] 11. Segment Information The company operates in four principal reportable segments: Pet, Fencing and Other; Industrial wood products; Seed processing and sales; and Corporate and administration. Performance is evaluated primarily based on business segment income before taxes Sales to Unaffiliated Customers (Nine Months Ended May 31) | Segment | 2025 | 2024 | | :----------------- | :----------- | :----------- | | Industrial wood products | $2,658,723 | $2,883,190 | | Lawn, garden, pet and other | $28,268,572 | $30,964,142 | | Seed processing and sales | $— | $83,718 | | Total Sales | $30,927,295 | $33,931,050 | (Loss) Income Before Income Taxes (Nine Months Ended May 31) | Segment | 2025 | 2024 | | :----------------- | :----------- | :----------- | | Industrial wood products | $(68,148) | $41,146 | | Lawn, garden, pet and other | $(2,615,470) | $384,102 | | Seed processing and sales | $— | $32,242 | | Corporate and administrative | $325,258 | $634,258 | | Total (Loss) Income Before Taxes | $(2,358,360) | $1,091,748 | - Sales to unaffiliated customers decreased by 9% overall, with significant declines in Lawn, garden, pet and other, and the cessation of Seed processing and sales[68] - The company reported a total loss before income taxes of $(2,358,360) in 2025, a substantial shift from income of $1,091,748 in 2024, primarily driven by losses in the Lawn, garden, pet and other segment[69] 12. Risks The company is exposed to credit risk, particularly due to concentrations of accounts receivable with a small number of customers, and volume of business risk, relying on a few key suppliers for a significant portion of purchases - Two customers accounted for 78% of total accounts receivable at May 31, 2025, indicating high credit risk concentration[71] - Four suppliers accounted for 10% or greater of total purchases for the nine months ended May 31, 2025, aggregating to $16,818,001, highlighting supplier concentration risk[72] 13. Supplemental Disclosure with Respect to Cash Flows This section provides supplemental cash flow information, detailing cash payments for interest and income taxes Cash Payments (Nine Months Ended May 31) | Payment Type | 2025 | 2024 | | :----------- | :----------- | :----------- | | Interest | $77,650 | $32,619 | | Income taxes | $15,000 | $173,717 | - Cash paid for interest increased significantly in 2025, while cash paid for income taxes decreased[73] 14. Contingencies The company settled an arbitration case against a former distributor in September 2023, receiving a cash payment of $2,450,000 - The arbitration settlement resulted in a $2,450,000 cash payment received in October 2023[74] 15. Subsequent Event In June 2025, the company renewed its line of credit agreement with Northrim, extending its expiration to June 30, 2026 - The line of credit agreement with Northrim was renewed in June 2025, extending its expiration to June 30, 2026[75] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, highlighting challenges such as new US tariffs, operational issues, and a soft pet market, which significantly reduced revenues and negatively impacted margins. The company is focusing on operational efficiencies, multi-sourcing strategies, and resolving logistical impediments - Sales for the three months ended May 31, 2025, declined by 21% from the prior year, resulting in a net loss of ($0.18) per share[100] - New US tariffs, particularly on imported metal products, have caused significant market turmoil, increased costs, and uncertainty in deliveries, leading retailers and consumers to defer purchases[101][102] - The company anticipates continued challenges in the fourth quarter due to fluctuating tariff rates, depressed consumer sentiment, stubborn inflation, and high interest rates, expecting a loss for the full year[111] Business Description The company is committed to providing innovative products for outdoor spaces, categorized into three reportable operating segments: Pet, Fencing and Other; Industrial Wood Products; and Seed Processing and Sales (now wound up), along with a Corporate and Administrative segment. Products include patented gate support systems, pet products, and sustainable/PCR bag products - The company's operations are classified into three reportable operating segments: Pet, Fencing and Other; Industrial wood products; and Corporate and administrative[77] - Key products include Adjust-A-Gate® and Fit-Right® gate support systems, Lucky Dog® pet products, and MyEcoWorld® sustainable/PCR bag products[80][94][96][97] - The Seed Processing and Sales segment (JCSC) ceased regular operations in August 2023 and is being wound up, with its property listed for sale[88][99] Pet, Fencing and Other Operating Segment This segment focuses on pet, fencing, and sustainable products, serving new and existing home and pet owners. It is seasonal, with higher sales from February to August. The company holds patents and trademarks for products like Adjust-A-Gate® and Fit-Right®, providing a competitive advantage - The home improvement business is seasonal, with higher sales occurring between February and August, leading to inventory buildup until the season starts[78] - The company owns patents and manufacturing rights for Adjust-A-Gate® and Fit-Right® products, which are gate support systems, providing a competitive advantage[80] - The newest product category is Sustainable and Post-Consumer Recycled ("PCR") bag products under the MyEcoWorld® brand, aiming to reduce single-use plastic[94] Industrial Wood Products - Greenwood Greenwood is a wholesale distributor of specialty wood products, primarily focused on the transportation industry, including advanced noise and vibration reduction panels (dB-Ply®) and structural panels. This segment's market has decreased in economic sensitivity but faced contractions due to COVID-19 and supply chain disruptions - Greenwood's products are focused on the transportation industry, including municipal and mass transit sectors[83][84] - Greenwood utilizes contract manufacturers and maintains inventory at non-owned warehouses, shipping primarily on a just-in-time basis[85][93] - Key products include dB-Ply® acoustical panels for noise/vibration reduction, durable structural panels, and Jumbo Concrete Forms[98] Seed Processing and Sales - JCSC JCSC, formerly involved in agricultural seed processing and distribution, ceased regular operations effective August 31, 2023. The company has sold most of its remaining seed inventory and equipment, and its 11.6-acre property is listed for sale at $9,000,000 - JCSC ended regular operations on August 31, 2023, and sold most of its remaining equipment and seed inventory[88][99] - The JCSC property, an 11.6-acre facility with 109,500 square feet of buildings, is listed for sale at $9,000,000[89][110] - The property is currently zoned 'Rural Industrial' (RIND), and rezoning efforts are being explored but face economic and political challenges[89][110] Corporate and Administration – JC USA JC USA serves as the parent company for Greenwood, JCC, and JCSC, providing professional and administrative services, including warehousing, accounting, and credit services, from its North Plains, Oregon offices - JC USA provides professional and administrative services, including warehousing, accounting, and credit services, to its subsidiary companies[90] Company Products The company designs, sources, commercializes, and distributes innovative products for outdoor spaces, many of which are patent-protected. These include fencing solutions (Adjust-A-Gate®, Fit-Right®, Lifetime Steel Post®, Euro Fence, Perimeter Patrol®, Cedar fencing), Lucky Dog® pet products (kennels, covers, crates, exercise pens), and MyEcoWorld® sustainable products (compostable food waste, yard waste, and pet poop bags) - Fencing products include Adjust-A-Gate®, Fit-Right®, Lifetime Steel Post®, Euro Fence, Perimeter Patrol® Portable Security Panels, and Cedar fencing[96] - Pet products under the Lucky Dog® brand include STAY Series Studio Kennels, Outdoor Kennel Covers, Dwell Series® Crates, and Exercise Pens[96] - Sustainable products under the MyEcoWorld® brand include Compostable Food Waste Bags, Yard Waste Bags, and Pet Poop Bags, with PCR options available[95][97] Results of Operations The company's results were significantly impacted by new US tariffs on imported metal products, operational issues, and a soft pet market, leading to reduced revenues and negative margins. Sales declined across segments, with JCC and Greenwood experiencing losses. The company is implementing operational efficiencies and managing production constraints - Sales for the current 3rd quarter declined by 21% from the prior year, resulting in a net loss of ($0.18) per share[100] - New US tariffs, particularly on imported metal products, caused immense turmoil, stressing logistics, increasing costs, and leading customers to defer purchases[101][102] - Lifetime Steel Posts® sales were up 85% compared to Q3 fiscal 2024, with 55 new display units deployed, though further expansion is temporarily paused due to production and logistical constraints[104] - MyEcoWorld® sales for the current nine months are up 265% over the comparative period in fiscal 2024, driven by consumer demand for sustainable products and shifting LuckyDog® compostable bags[107] - Employee headcount was reduced by 33% year-to-date, and the company is upgrading warehouse technology to improve productivity and reduce costs[109] Three Months Ended May 31, 2025 and May 31, 2024 For the three months ended May 31, 2025, total sales decreased by 21% to $12,605,344, primarily due to tariff uncertainty and fencing shortages. JCC sales declined by 20%, and Greenwood sales decreased by 24%. The company reported a net loss of $(649,634), compared to a net income of $154,862 in the prior year, with gross margin falling to 15.0% from 18.6% Key Financials (Three Months Ended May 31) | Metric | 2025 | 2024 | Change (%) | | :--------------------------------- | :----------- | :----------- | :--------- | | Sales | $12,605,344 | $15,896,017 | -21% | | JCC Sales | $11,900,284 | $14,957,204 | -20% | | Greenwood Sales | $705,059 | $924,767 | -24% | | Gross Margin | 15.0% | 18.6% | -3.6 pp | | Net (Loss) Income | $(649,634) | $154,862 | -519% | | Basic (Loss) Earnings Per Share | $(0.18) | $0.04 | -550% | - Operating expenses decreased by $318,693, with wages and employee benefits declining due to a 20% reduction in employee headcount[118] - Interest expense increased significantly to ($74,147) from ($1,437) due to borrowings against the line of credit[118] Nine Months Ended May 31, 2025 and May 31, 2024 For the nine months ended May 31, 2025, total sales decreased by 9% to $30,927,295, primarily due to restrained consumer spending and increased tariff rates. JCC sales declined by 9%, and Greenwood sales decreased by 8%. The company reported a net loss of $(1,881,445), a significant shift from a net income of $912,257 in the prior year, with gross margin falling to 17.5% from 20.5% Key Financials (Nine Months Ended May 31) | Metric | 2025 | 2024 | Change (%) | | :--------------------------------- | :----------- | :----------- | :--------- | | Sales | $30,927,295 | $33,931,050 | -9% | | JCC Sales | $28,268,572 | $30,964,142 | -9% | | Greenwood Sales | $2,658,723 | $2,883,190 | -8% | | Gross Margin | 17.5% | 20.5% | -3.0 pp | | Net (Loss) Income | $(1,881,445) | $912,257 | -306% | | Basic (Loss) Earnings Per Share | $(0.54) | $0.26 | -308% | - Operating expenses declined to $7,715,030 from $8,431,989, driven by lower headcount and reduced wages and employee benefits[126] - The prior year's period included $2,450,000 in other income from an arbitration settlement and a $90,537 gain on asset sales, which were not present in the current period[127] Liquidity and Capital Resources The company's working capital decreased by $2,233,666 to $18,314,427 as of May 31, 2025. Cash and cash equivalents significantly decreased due to inventory purchases and accounts receivable timing. Current liabilities increased due to bank indebtedness. The company relies on an asset-based line of credit with Northrim, from which it has drawn $2,422,305 to fund seasonal inventory Working Capital and Cash Position | Metric | May 31, 2025 | August 31, 2024 | | :--------------------------------- | :----------- | :-------------- | | Working Capital | $18,314,427 | $20,548,093 | | Cash and Cash Equivalents | $1,204,719 | $4,853,367 | | Inventory | $15,257,917 | $13,157,243 | | Accounts Receivable | $6,789,582 | $3,668,815 | | Current Liabilities | $6,209,261 | $2,639,370 | | Bank Indebtedness | $2,422,305 | $— | - Cash and cash equivalents decreased by $3,648,648, primarily due to increased inventory purchases for the Spring/Summer seasons and timing of accounts receivable collection[130] - Accounts receivable and inventory represented 90% of current assets and 75% of total assets as of May 31, 2025[132] - The company expects to have sufficient liquidity for the next twelve months based on its working capital, accounts receivable timing, and available line of credit[135] Other Matters This section discusses external factors impacting the business, including the significant and evolving US tariffs on imported products, inflationary pressures leading to increased costs and interest rates, the company's commitment to Environmental, Social, and Corporate Governance (ESG) initiatives, and compliance with the Uyghur Forced Labor Prevention Act Tariffs New US tariffs, particularly on steel and aluminum products, have significantly increased costs and created uncertainty. While the company diversified suppliers outside China, these new sources are now subject to global tariffs, impacting expected cost benefits. Tariffs on Chinese steel products reached 95% as of June 4, 2025 - Imported steel and aluminum products from all countries globally were assigned a new tariff rate of 25%, which was doubled to 50% as of June 4, 2025[138] - Tariff rates on steel products imported from China were at 95% as of June 4, 2025, combining various tariffs[138] - The company is shifting to suppliers outside of China to mitigate higher tariff rates, but faces uncertainty in tariff interpretation and applicability[139] Inflation Inflation has substantially increased product costs (raw materials, energy, transportation, labor), negatively affecting gross margins. The company's ability to pass these costs to customers is limited and often delayed. High inflation has also led to increased interest rates, impacting borrowing costs on the line of credit - Product costs have increased substantially due to inflation, negatively affecting gross margins, with limited ability to pass on costs quickly to price-sensitive customers[140] - The interest rate on the company's line of credit, computed using the Prime Interest Rate, has risen from 3.25% in January 2022 to approximately 7.50% in February 2025[141] - As of May 31, 2025, the company had drawn $2,422,305 against its line of credit at a current interest rate of 12.25%[141] Environmental, Social and Corporate Governance (ESG) Jewett-Cameron is committed to ESG principles, aiming for 90% recyclable product materials, auditing suppliers for fair practices and environmental awareness, and designing packaging for maximum recyclability. Socially, it supports employee engagement, educational programs, and local community initiatives. Governance includes adherence to Sarbanes-Oxley, robust financial controls, and an IT Governance Committee - Environmental goals include 90% recyclable materials, audited suppliers, maximized packaging recyclability, and energy-efficient facilities[143] - Social responsibilities involve employee engagement surveys, support for educational programs (CTE/STEM), and active local community participation[145] - Governance adheres to Sarbanes-Oxley, with self-audited and externally audited financial controls, risk mitigations, and an IT Governance Committee[146] Uyghur Forced Labor Prevention Act The company ensures full compliance with the Uyghur Forced Labor Prevention Act (UFLPA), which prohibits imports from China's Xinjiang Uyghur Autonomous Region presumed to be made with forced labor. All suppliers are verified to ensure no products fall under the prohibited goods clause - The UFLPA prohibits imports from China's Xinjiang Uyghur Autonomous Region due to presumed forced labor[147] - The company has ensured all its suppliers are in full compliance with the UFLPA, and none of its products are prohibited[147] Business Risks The company faces various business risks, including decreased product demand due to competition and economic conditions, high dependence on a limited number of customers and third-party manufacturers, and vulnerability to governmental actions like tariffs. Other risks include supply chain delays, intense competition, seasonality of outdoor product sales, intellectual property infringement, product liability claims, inflation, loss of credit agreements, cybersecurity breaches, and the failure to maintain effective internal controls Risks Related to Our Business Key business risks include potential decreases in product demand, significant reliance on a limited number of customers (top ten customers represent 98% of sales), and dependence on third-party manufacturers and suppliers, which exposes the company to increased costs, delays, and supply chain disruptions. Governmental actions like tariffs, competition, seasonality, product liability, and inflation also pose significant threats - The top ten customers represented 98% of total sales for the nine months ended May 31, 2025, with the single largest customer accounting for 38%[150] - Reliance on third-party manufacturers creates risks of increased costs, manufacturing/shipping delays, and supply interruptions due to geopolitical events or operational issues[153][154] - Governmental actions, such as tariffs (e.g., 95% on Chinese steel products), can adversely impact product availability and cost, reducing margins and competitiveness[157] - Outdoor product sales are highly seasonal, with the majority of revenues and income occurring during the third and fourth fiscal quarters, making them vulnerable to adverse weather[160] Risks Related to Our Common Shares Risks related to common shares include potential dilution from future asset acquisitions or business combinations paid with common shares, and the possibility of new stock distributions causing dilution or a change in control. The limited trading volume of common stock (average daily volume of 8,300 shares for the nine months ended May 31, 2025) can lead to difficulty in trading and price volatility - Future acquisitions or business combinations paid with common shares could dilute current shareholders' ownership percentage[169] - New stock distributions could have rights, preferences, or privileges senior to existing shares, or cause a change in control[170] - The limited average daily trading volume of 8,300 shares for the nine months ended May 31, 2025, could make it difficult for investors to trade common stock and lead to price volatility[171] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate risk due to its asset-based line of credit, where interest rates fluctuate based on the prime rate. It also faces foreign currency risk, although currently small, which may increase with international sales expansion and foreign contract manufacturers - The company's interest expense is sensitive to changes in U.S. interest rates, as its line of credit interest rate is computed at prime rate plus 4.75% (12.25% as of May 31, 2025)[173] - As of May 31, 2025, the company had borrowed $2,422,305 under its line of credit, exposing it to increased interest payments with rising rates[173] - Foreign currency risk is currently small but may increase with expansion of international sales and use of foreign contract manufacturers[174] Item 4. Controls and Procedures Management, including the Principal Executive Officer and Principal Financial Officer, concluded that the company's disclosure controls and procedures were effective as of May 31, 2025. There were no material changes in internal control over financial reporting during the most recently completed fiscal quarter - Disclosure controls and procedures were evaluated and deemed effective as of May 31, 2025, ensuring timely and accurate reporting[175] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[176] Part II Item 1. Legal Proceedings The company settled an arbitration case against a former distributor in September 2023, receiving a $2,450,000 cash payment. There are no other known material active or pending legal proceedings against the company - The company settled an arbitration for $2,450,000 in October 2023, ruling in its favor on most claims[177] - No other material active or pending legal proceedings are known against the company[178] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No disclosure is required for this item Item 3. Defaults Upon Senior Securities No disclosure is required for this item Item 4. Mine Safety Disclosures No disclosure is required for this item Item 5. Other Information During the quarter ended May 31, 2025, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or plan for the purchase or sale of company securities - No Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter ended May 31, 2025[179] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL taxonomy documents - Exhibits include certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[180] - XBRL Instance Document and Taxonomy Extension documents are also filed[180]