Financial Performance - Sales declined by 7% in the first quarter, resulting in a net loss of $3,944,139, or $1.12 per share[121] - Sales for the three months ended November 30, 2025, were $8,653,467, a decrease of $613,534, or 7%, compared to $9,267,001 for the same period in 2024[133] - The operating loss for JCC was ($3,893,158) for the quarter ended November 30, 2025, compared to an operating loss of ($920,237) for the same quarter in 2024, including a $2,208,813 inventory write-down[134] - Gross margin for the three-month period ended November 30, 2025, was negative 12.5%, down from a positive 18.3% for the same period in 2024, primarily due to increased inventory write-downs and a shift to lower-margin products[137] - The company is facing challenges from negative consumer buying trends and operational issues, which are expected to continue affecting margins and demand for products throughout fiscal 2026[122] Inventory and Supply Chain - The company experienced a write-down of inventory amounting to $2,208,813, primarily related to excess lumber and certain pet inventory[121] - The new import tariffs have significantly increased supply chain costs and logistics, leading to a double-digit reduction in overall gross margins across most product lines[122] - Approximately 5% of the company's metal products are currently imported from China, down from previous levels due to tariff adjustments[120] - The company recorded an additional $550,000 inventory allowance in the first quarter of fiscal 2026 due to continued liquidation of older inventory in a sluggish pet market[125] Working Capital and Liquidity - As of November 30, 2025, working capital decreased to $13,636,039 from $17,026,472 as of August 31, 2025, a decrease of $3,390,433[143] - Cash and cash equivalents increased to $1,036,218, up $810,005 from $226,213 as of August 31, 2025, due to timing of accounts receivable collections[144] - The Company expects sufficient liquidity to meet working capital requirements for the next 12 months based on current working capital position and revised credit arrangement[149] - The maximum amount of accounts receivable invoices Northrim will purchase is now limited to 90% of the maximum eligible accounts, not exceeding $8,000,000, increased from a previous limit of $6,000,000[147] - Borrowing against the Company's inventory has increased to 50% of all eligible inventory, with a maximum borrowing amount raised to $6,500,000 from $4,000,000[147] Costs and Expenses - Inflation has led to increased product costs, negatively affecting gross margins, with management expecting continued pressure on margins in fiscal 2026[151] - The Prime Interest Rate has risen from 3.25% in January 2022 to approximately 7.50% in August 2025, impacting interest expenses on borrowings[152] - The company is actively seeking to reduce operating and administrative costs, achieving a 26% reduction in wages and employee expenses compared to the first quarter of fiscal 2025[128] Market and Competition - Significant competition exists in the market, which could lead to reduced demand for the company's products and potential loss of market share[172] - The top ten customers accounted for 97% of total sales for the fiscal year ended August 31, 2025, with the largest customer representing 39% and the two largest customers together accounting for 74% of total sales[170] - The fencing business is seasonal, with higher sales occurring between February and August, leading to inventory buildup prior to the season[96] - Outdoor product sales are highly seasonal, with the majority of revenue generated during the spring and summer months, making the company vulnerable to adverse weather conditions[176] Risks and Compliance - The company has identified significant deficiencies in internal controls related to financial reporting, which could impact the accuracy of financial results and investor confidence[190] - A recent cybersecurity incident involved unauthorized access to the company's IT environment, leading to potential data exfiltration and operational disruptions[183] - Compliance with evolving privacy laws, such as GDPR and CCPA, may result in increased costs and liabilities for the company[188] - The company may require additional funding to strengthen liquidity, which could involve selling real estate assets and increasing borrowing capacity[160] - The ongoing tariff and global economic situation has created challenges in managing supply chain and product costs, necessitating immediate steps to strengthen liquidity[160] Shareholder and Stock Information - The company may face dilution of existing stockholders' shares if additional common stock is issued in the future[194] - The average daily trading volume of the company's common stock was approximately 9,300 shares on NASDAQ for the fiscal year ended August 31, 2025[196] - Future sales of common stock by shareholders could cause the stock price to decline significantly, leading to potential dilution for existing shareholders[198] Interest Rate and Financial Instruments - The company is exposed to interest rate risk, with interest computed at the prime rate plus 4.75%, with a floor of 11%[203] - The company does not have any derivative financial instruments as of November 30, 2025, but is still exposed to interest rate risk[202] - Changes in U.S. interest rates affect the interest earned on the company's cash, impacting its interest income and expense[202] - The company is subject to reporting obligations under Canadian securities laws and SEC rules, which place significant demands on its resources[201] - The company anticipates that new regulations will continue to increase its legal and financial costs[199]
Jewett-Cameron Trading Co Ltd(JCTC) - 2026 Q1 - Quarterly Report