Jewett-Cameron Trading pany .(JCTCF) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The company's financial statements for the quarter ended November 30, 2020, reflect significant sales growth and a return to profitability, supported by strong cash flow from operations Consolidated Balance Sheets As of November 30, 2020, total assets increased slightly to $23.45 million, primarily due to higher cash and cash equivalents, while total liabilities decreased Consolidated Balance Sheet Highlights (in U.S. Dollars) | Account | November 30, 2020 | August 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $5,839,952 | $3,801,037 | | Accounts receivable, net | $4,246,957 | $6,274,426 | | Inventory, net | $9,421,159 | $9,198,146 | | Total current assets | $20,347,941 | $20,309,737 | | Total assets | $23,449,883 | $23,277,961 | | Liabilities & Equity | | | | Total current liabilities | $3,292,124 | $3,494,283 | | Total liabilities | $3,613,011 | $3,929,616 | | Total stockholders' equity | $19,836,872 | $19,348,345 | | Total liabilities and stockholders' equity | $23,449,883 | $23,277,961 | Consolidated Statements of Operations For the three months ended November 30, 2020, sales increased 46.2% to $10.32 million, leading to a net income of $488,527 and a significant turnaround in profitability Consolidated Statement of Operations (Three Months Ended) | Metric | November 30, 2020 | November 30, 2019 | | :--- | :--- | :--- | | Sales | $10,316,284 | $7,055,178 | | Gross Profit | $2,962,899 | $2,048,343 | | Income from operations | $623,783 | ($10,874) | | Net income (loss) | $488,527 | ($6,621) | | Basic earnings per common share | $0.14 | ($0.00) | | Diluted earnings per common share | $0.14 | ($0.00) | Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $2.22 million for the three months ended November 30, 2020, contributing to a $2.04 million increase in the overall cash balance Cash Flow Summary (Three Months Ended) | Category | November 30, 2020 | November 30, 2019 | | :--- | :--- | :--- | | Net cash provided by (used by) operating activities | $2,223,162 | ($654,311) | | Net cash used in investing activities | ($184,247) | ($28,750) | | Net increase (decrease) in cash | $2,038,915 | ($683,061) | | Cash, end of period | $5,839,952 | $8,969,249 | Notes to the Consolidated Financial Statements The notes provide details on the company's operations, accounting policies, and financial components, including the impact of COVID-19, PPP loans, and significant customer and supplier concentration risks - The company's business consists of manufacturing and distributing specialty metal products (fencing, pet products), wholesale wood products, industrial wood products, and agricultural seeds, primarily in the United States[26] - The COVID-19 pandemic increased demand for fencing, pet, and DIY products and shifted sales towards online channels. The company's operations were deemed essential and have continued, but future impacts remain uncertain[27] - The company received two unsecured PPP loans totaling $680,707 in May 2020 with a 1% interest rate and a 2-year term. The company believes it has used the proceeds for qualifying expenses and can apply for forgiveness[61][62] - For the three months ended Nov 30, 2020, one customer accounted for over 10% of total sales, with sales of $4,898,298[79] - At November 30, 2020, two customers accounted for 55% of total accounts receivable. For the quarter, two suppliers accounted for $4,082,187 of total purchases[82][83] - The company is a defendant in a product liability lawsuit in Pennsylvania concerning personal injuries allegedly caused by a dog escaping from one of its kennel products. The company intends to vigorously defend the lawsuit, and its insurer is covering legal fees[85] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 46% sales growth driven by increased demand for DIY and pet products, ongoing investments in infrastructure, and the company's strong liquidity position despite future uncertainties from the pandemic Results of Operations First-quarter sales increased 46% to $10.3 million, primarily driven by a 60% surge in the Lawn, Garden, and Pet segment, contributing to improved overall profitability - Overall sales increased by $3,261,106 (46%) for the three months ended Nov 30, 2020, compared to the prior-year period, primarily due to higher sales from Lawn, Garden, and Pet products[99] Segment Sales Performance (Three Months Ended Nov 30, 2020 vs 2019) | Segment | Q1 FY2021 Sales | Q1 FY2020 Sales | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Lawn, garden, pet (JCC) | $8,929,636 | $5,577,494 | +$3,352,142 | +60% | | Industrial wood (Greenwood) | $724,752 | $784,868 | -$60,116 | -8% | | Seed processing (JCSC) | $661,896 | $524,595 | +$137,301 | +26% | | Industrial tools (MSI) | $0 | $168,221 | -$168,221 | -100% | - Operating expenses increased by $279,899, primarily due to adding additional staff[106] - The company is undertaking capital projects, including a new ERP system installation, a new Creative Center for product development, and office renovations[96] Liquidity and Capital Resources As of November 30, 2020, the company maintained strong liquidity with $17.1 million in working capital and a fully available $3 million line of credit, supplemented by PPP loan proceeds - Working capital increased to $17,055,817 as of Nov 30, 2020, from $16,815,454 at Aug 31, 2020[108] - The company has an available line of credit of $3,000,000 with U.S. Bank, with no outstanding balance as of November 30, 2020[110] - The company received two PPP loans totaling $680,707, which it used for employee payroll expenses. It plans to apply for forgiveness[111][112][113] - Subsequent to the quarter end, the company issued 7,999 common shares under its Restricted Share Plan at a deemed price of $8.80 per share[115] Business Risks Key business risks include potential stock dilution, low trading volume, COVID-19 impacts on supply chains and demand, high customer concentration, reliance on foreign suppliers, and the effects of government tariffs - The COVID-19 pandemic poses risks including supply chain disruptions from third-party manufacturers in China, potential for employee isolation to halt operations, and a potential economic downturn reducing consumer demand[120][130] - The company has high customer concentration, with its top ten customers representing 75% of total sales for the quarter[124] - The company's metal products are manufactured in China and are subject to tariffs, which were 25% as of September 2020. These tariffs could increase product costs and reduce competitiveness[93][94][126] - The average daily trading volume of the company's common stock was low at 6,130 shares for the quarter, which could make it difficult for investors to buy or sell shares[119] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to interest rate risk on its variable-rate line of credit and foreign currency risk due to significant sourcing from China - The company is exposed to interest rate risk on its line of credit, as the rate fluctuates with the one-month LIBOR rate[133] - Foreign currency risk exists as the company uses contract manufacturers in China, and currency exchange rates can influence purchasing costs[134] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - Management concluded that as of the end of the period, the company's disclosure controls and procedures were effective[136] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[137] PART II – OTHER INFORMATION Legal Proceedings The company is a defendant in a product liability lawsuit in Pennsylvania, with its liability insurer covering legal fees and costs - The company is a named party in a civil action in Pennsylvania concerning a product liability claim for personal injuries[138] - The company's applicable liability insurer is providing a defense and covering legal fees and costs[138] Other Required Disclosures No disclosure was required for Items 2, 3, 4, and 5, covering unregistered equity sales, defaults, mine safety, and other information - No disclosure was required for Items 2, 3, 4, and 5[140] Exhibits The report includes various exhibits filed with the SEC, such as CEO/CFO certifications and XBRL data files - Exhibits filed include CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[141] - The filing includes XBRL Instance Document and related taxonomy files[142]