The financial statements and notes thereto are attached hereto. The audit report of Davidson & Company, LLP Chartered Accountants is included herein immediately preceding the audited consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
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 incorporated under the laws of the State of Oregon: Jewett-Cameron Seed Company, (JCSC), incorporated October 2000, Greenwood Products, Inc. (Greenwood), incorporated February 2002, and Jewett-Cameron Company, incorporated September 2013. Former wholly owned subsidiary MSI-PRO was wound-up and dissolved in fiscal 2020. 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. JCSC is a processor and distributor of agricultural seeds in the United States. MSI was an importer and distributor of pneumatic air tools and industrial clamps in the United States. JC USA provides professional and administrative services, including accounting and credit services, to its subsidiary companies.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic. Government measures to limit the spread of COVID-19, including the closure of non-essential businesses, affected the Companys operations including delays in inventory production and shipping, a change of product mix based on customer demand to fencing, pet and DIY products, an increase in demand from online sales channels, and costs associated with compliance with COVID-19 control protocols. The Companys operations, including inventory production and sales, have been excluded from business restrictions within the jurisdictions that the Company operates. However, due to the rapid developments and uncertainty surrounding COVID-19, it is not possible to predict the impact that COVID19 will have on the Companys business, financial position, and operating results in the future. In addition, it is possible that estimates in the Companys consolidated financial statements will change in the near term as a result of COVID-19 and the effect of any such changes could be material, which could result in, among other things valuation of inventory and collectability of accounts receivable. The Company is closely monitoring the impact of the pandemic on all aspects of its business.
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 current wholly owned subsidiaries, JC USA, JCC, JCSC, and Greenwood, and its former wholly owned subsidiary MSI, all of which are incorporated under the laws of Oregon, U.S.A.
All inter-company balances and transactions have been eliminated upon consolidation.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
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 a maturity of three months or less at the time of issuance to be cash equivalents. At August 31, 2020, cash and cash equivalents were $3,801,037 compared to $9,652,310 at August 31, 2019.
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
|
3-7 years
|
|
Warehouse equipment
|
2-10 years
|
|
Buildings
|
5-30 years
|
Intangibles
The Companys intangible assets have a finite life and are recorded at cost. Amortization is calculated using the straight-line method over the remaining life of the asset. The intangible assets are reviewed annually for impairment.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
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 primarily based 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 statement of operations 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.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd
)
Earnings per share (contd
)
The earnings per share data for the fiscal years ended August 31, 2020 and 2019 are as follows:
|
|
|
|
|
|
|
|
|
|
2020
|
2019
|
|
|
|
|
|
|
|
|
Net income
|
$
|
2,784,525
|
|
$
|
2,100,452
|
|
|
|
|
|
|
|
|
Basic weighted average number of
common shares outstanding
|
|
3,623,413
|
|
|
4,233,304
|
|
|
|
|
|
|
|
|
Effect of dilutive securities
|
|
|
|
|
|
|
Stock options
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Diluted weighted average number
of common shares outstanding
|
|
3,623,413
|
|
|
4,233,304
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per common share
|
$
|
0.77
|
|
$
|
0.50
|
|
|
|
|
|
|
|
Comprehensive income
The Company has no items of other comprehensive income in any year 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 years ended August 31, 2020 and 2019 and there were no options outstanding on August 31, 2020 or 2019.
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 payable - the carrying amount approximates fair value due to the short-term nature of the obligations.
Accounts payable and accrued liabilities - the carrying amount approximates fair value due to the short-term nature of the obligations.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd
)
Financial instruments (contd
)
The estimated fair values of the Company's financial instruments as of August 31, 2020 and 2019 follows:
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
Carrying
|
Fair
|
|
Carrying
|
Fair
|
|
|
Amount
|
Value
|
|
Amount
|
Value
|
|
Cash and cash equivalents
|
$3,801,037
|
$3,801,037
|
|
$9,652,310
|
$9,652,310
|
|
Accounts receivable, net of allowance
|
6,274,426
|
6,274,426
|
|
2,835,952
|
2,835,952
|
|
Notes Payable
|
680,707
|
680,707
|
|
-
|
-
|
|
Accounts payable and accrued liabilities
|
3,111,361
|
3,111,361
|
|
1,722,607
|
1,722,607
|
The following table presents information about the assets that are measured at fair value on a recurring basis as of August 31, 2020 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 31,
2020
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
3,801,037
|
|
$
|
3,801,037
|
|
$
|
|
|
$
|
|
|
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 sales in the consolidated statements of operations. All costs billed to the customer are included as sales in the consolidated statements of operations.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd
)
Financial instruments (contd
)
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.
Recent Accounting Pronouncements
In February 2016, Topic 842, Leases was issued to replace the leases requirements in Topic 840, Leases. The main difference between previous GAAP and Topic 842 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term. The accounting applied by a lessor is largely unchanged from that applied under previous GAAP. Topic 842 will be effective for annual reporting periods beginning after December 15, 2021, including interim periods within those annual periods and is to be retrospectively applied. Earlier application is permitted. The Company adopted this ASU on September 1, 2019. There was no material impact on the Companys financial statements on adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The accounting standard changes the methodology for measuring credit losses on financial instruments and the timing when such losses are recorded. ASU No. 2016-14 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019. The Company is currently evaluating the impact of ASU No. 2016-13 on its financial position, results of operations and liquidity.
3.
INVENTORY
A summary of inventory as of August 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Wood products and metal products
|
$
|
9,017,349
|
|
$
|
5,833,047
|
|
Industrial tools
|
|
-
|
|
|
239,280
|
|
Agricultural seed products
|
|
180,797
|
|
|
305,478
|
|
|
|
|
|
|
|
|
|
$
|
9,198,146
|
|
$
|
6,377,805
|
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
4.
PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant, and equipment as of August 31, 2020 and 2019 is as follows:
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Office equipment
|
$
|
654,739
|
|
$
|
486,038
|
|
Warehouse equipment
|
|
1,293,331
|
|
|
1,265,532
|
|
Buildings
|
|
4,182,332
|
|
|
4,072,741
|
|
Land
|
|
559,065
|
|
|
559,065
|
|
|
|
6,689,467
|
|
|
6,383,376
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
(3,721,902)
|
|
|
(3,655,970)
|
|
|
|
|
|
|
|
|
Net book value
|
$
|
2,967,565
|
|
$
|
2,727,406
|
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.
5.
INTANGIBLE ASSETS
A summary of intangible assets as of August 31, 2020 and 2019 follows:
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Intangible assets
|
|
16,405
|
|
|
43,655
|
|
|
|
|
|
|
|
|
Accumulated amortization
|
|
(15,746)
|
|
|
(40,607)
|
|
|
|
|
|
|
|
|
Net book value
|
$
|
659
|
|
$
|
3,048
|
During fiscal 2020, the Company wrote-off the intangible assets related to the wound-up and dissolved MSI-PRO subsidiary.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
6.
INCOME TAXES
A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows:
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Computed tax at the federal statutory rate
|
$
|
807, 223
|
|
$
|
605,466
|
|
State taxes, net of federal benefit
|
|
218,611
|
|
|
173,114
|
|
Depreciation
|
|
(33,518)
|
|
|
920
|
|
Inventory reserve
|
|
7,587
|
|
|
20,458
|
|
Other
|
|
68,980
|
|
|
8,383
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
$
|
1,068,883
|
|
$
|
808,341
|
|
|
|
|
|
|
|
|
Current income taxes
|
$
|
1,068,883
|
|
$
|
808,341
|
|
Deferred income taxes
|
|
35,748
|
|
|
(20,649)
|
|
|
$
|
1,104,631
|
|
$
|
787,692
|
Deferred income tax liability as of August 31, 2020 of $96,952 (August 31, 2019 $61,204) reflects 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. 63854
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
Allowance for inventory
|
$
|
92,999
|
|
$
|
83,243
|
|
Allowance for bad debts
|
|
-
|
|
|
-
|
|
Difference between book and tax depreciation
|
|
(51,892)
|
|
|
(6,388)
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
41,107
|
|
|
76,855
|
|
Valuation allowance
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
41,107
|
|
|
76,855
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
(138,059)
|
|
|
(138,059)
|
|
|
|
|
|
|
|
|
Combined net deferred tax liability
|
$
|
(96,952)
|
|
$
|
(61,204)
|
7.
BANK INDEBTEDNESS
There was no bank indebtedness under the Companys line-of-credit as of August 31, 2020 or August 31, 2019. At August 31, 2020, the line of credit borrowing limit was $3,000,000.
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 175 basis points.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
8.
NOTES PAYABLE
On May 4, 2020, the Company entered into loan agreements with U.S. Bank (the Lender) for two unsecured loans represented by promissory notes (the Notes). The loans were made pursuant to the Paycheck Protection Program (the PPP) as part of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) administered by the U.S. Small Business Administration (SBA).
The first loan was made to JCC for $487,127 and the second loan was made to JC USA for $193,580. The total principal amount of the two notes is $680,707. They have a term of 2 years with a 1% annual interest rate. Payments are deferred for 6 months, after which the repayment of principal and interest is required to be made in equal monthly payments over 18 months beginning December 4, 2020. There is no prepayment penalty. If proceeds are used for qualifying expenses as defined by the CARES Act, including payroll costs, health care benefits, rent and utilities, the Company can apply for forgiveness after 60 days of all or any portion of the promissory note used for such qualifying expenses. Although the Company intends to use the proceeds for qualifying expenses, there is no assurance that the Company will obtain forgiveness of the loan. The terms of the promissory note, including eligibility and forgiveness, may be subject to additional requirements adopted by the SBA.
The Company has chosen to account for the loans under FASB ASC 470. Repayment amounts due within 1 year have been recorded as current liabilities, and the remaining amounts due in more than 1 year as long-term liabilities. If the Company is successful in receiving forgiveness for those portions of the loan used for qualifying expenses, those amounts will be recorded as a gain upon extinguishment.
9.
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.
10.
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 2nd quarter of fiscal 2020 ended February 29, 2020, the Company repurchased for cancelation a total of 490,120 common shares from two large shareholders, including an officer and director of the Company. The shares were repurchased privately at a price of $7.89 per share, calculated as the Volume Weighted Average Price (VWAP) of all the shares traded on NASDAQ during the first quarter of fiscal 2020. The total cost of the share repurchases was $3,867,046. The premium paid to acquire those shares over their per share book value in the amount of $3,751,427 was recorded as a decrease to retained earnings
During the 4th quarter of fiscal 2019 ended August 31, 2019, the Company repurchased a total of 46,408 common shares under a 10b-18 share repurchase plan originally announced on February 7, 2019. The total cost was $399,593 at an average share price of $8.61 per share. The premium paid to acquire those shares over their per share book value in the amount of $388,645 was recorded as a decrease to retained earnings.
During the 3rd quarter of fiscal 2019 ended May 31, 2019, the Company repurchased a total of 195,142 shares under a 10b-18 share repurchase plan originally announced on February 7, 2019. The total cost was $1,704,543 at an average share price of $8.73 per share. The premium paid to acquire those shares over their per share book value in the amount of $1,658,509 was recorded as a decrease to retained earnings.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
10.
CANCELLATION OF CAPITAL STOCK (contd
)
During the 2nd quarter of fiscal 2019 ended February 28, 2019, the Company repurchased a total of 8,450 shares under the February 2019 10b-18 share repurchase plan. The total cost was $63,929 at an average share price of $7.57 per share. The premium paid to acquire those shares over their per share book value in the amount of $61,936 was recorded as a decrease to retained earnings.
During the 1st quarter of fiscal 2019 ended November 30, 2018, the Company repurchased and cancelled a total of 95,671 shares under a 10b-18 share repurchase plan originally announced on June 6, 2018. The total cost was $893,376 at an average share price of $9.34 per share. The premium paid to acquire those shares over their per share book value in the amount of $870,805 was recorded as a decrease to retained earnings.
11.
SHARE-BASED INCENTIVE PLANS
Stock Options
The Company formerly had a stock option program under which stock options to purchase securities from the Company could 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 could 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 vested at the discretion of the Board of Directors.
During the year ended August 31, 2020, the Companys Board of Directors approved the termination of the stock option program. The Company had no stock options outstanding as of August 31, 2020 and August 31, 2019.
Restricted Share Plan
The Company has a Restricted Share Plan (the Plan) as approved by shareholders on February 8, 2019. The Plan allows the Company to grant, from time to time, restricted shares as compensation to directors, officers, employees and consultants of the Company. The Restricted Shares are subject to restrictions, including the period under which the shares will be restricted (the Restricted Period) and subject to forfeiture which is determined by the Board at the time of the grant. The recipient of Restricted Shares is entitled to all of the rights of a shareholder, including the right to vote such shares and the right to receive any dividends, except that the shares granted under the Plan are nontransferable during the Restricted Period.
The maximum number of Common Shares reserved for issuance under the Plan will not exceed 1% of the then issued and outstanding number of Common Shares at the time of the grant. As of August 31, 2020, the maximum number of shares available to be issued under the Plan was 39,712.
During the year ended August 31, 2019, the Company issued 2,294 common shares under the Plan to the Companys CEO as a portion of his earned fiscal 2018 bonus as approved by the Board. The value of this award was $18,444, with the number of shares issued determined by the closing price of the stock on the day of the grant.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
12.
PENSION AND PROFIT-SHARING PLANS
The Company has a deferred compensation 401(k) plan for all employees with at least 6 months of service pending a monthly enrollment time. The plan allows for a non-elective discretionary contribution plus matching employee contributions up to a specific limit. The percentages of contribution remain the discretion of the Board and are reviewed with management annually. For the years ended August 31, 2020 and 2019 the 401(k) compensation expense was $439,368 and $295,557, respectively.
13.
DISCONTINUED OPERATIONS
Effective September 1, 2019, the Board of Directors decided to permanently close the MSI division and exit the industrial tools business. As of August 31, 2020, the remaining inventory has been liquidated, the division has been wound-up, and the subsidiary has been voluntarily dissolved. The operations and assets of MSI were significantly immaterial to the Companys overall performance. As such, separate disclosure of MSIs operations as discontinued operations within the Companys statement of operations was not considered necessary.
14.
SEGMENT INFORMATION
The Company has four principal reportable segments. Three segments are continuing operations and one, Industrial Tools and Clamps, is considered as a discontinued operation. 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.
Following is a summary of segmented information for the years ended August 31:
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
Sales to unaffiliated customers:
|
|
|
|
|
|
|
Industrial wood products
|
$
|
2,285,250
|
|
$
|
3,910,117
|
|
Lawn, garden, pet and other
|
|
40,348,660
|
|
|
38,510,213
|
|
Seed processing and sales
|
|
2,071,157
|
|
|
2,233,406
|
|
Industrial tools and clamps
|
|
240,196
|
|
|
792,626
|
|
|
$
|
44,945,263
|
|
$
|
45,446,362
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes:
|
|
|
|
|
|
|
Industrial wood products
|
$
|
(122,088)
|
|
$
|
71,192
|
|
Lawn, garden, pet and other
|
|
3,936,491
|
|
|
2,040,631
|
|
Seed processing and sales
|
|
(181,712)
|
|
|
(222,191)
|
|
Industrial tools and clamps
|
|
(237,133)
|
|
|
(159,914)
|
|
Corporate and administrative
|
|
493,598
|
|
|
1,158,426
|
|
|
$
|
3,889,156
|
|
$
|
2,888,144
|
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
14.
SEGMENT INFORMATION (contd
)
|
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
Industrial wood products
|
$
|
819,585
|
|
$
|
977,117
|
|
Lawn, garden, pet and other
|
|
14,984,480
|
|
|
7,590,487
|
|
Seed processing and sales
|
|
544,161
|
|
|
471,888
|
|
Industrial tools and clamps
|
|
-
|
|
|
279,591
|
|
Corporate and administrative
|
|
6,929,735
|
|
|
12,895,595
|
|
|
$
|
23,277,961
|
|
$
|
22,214,677
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
Industrial wood products
|
$
|
-
|
|
$
|
-
|
|
Lawn, garden, pet and other
|
|
29,774
|
|
|
23,021
|
|
Seed processing and sales
|
|
6,347
|
|
|
8,007
|
|
Industrial tools and clamps
|
|
2,242
|
|
|
489
|
|
Corporate and administrative
|
|
179,349
|
|
|
160,302
|
|
|
$
|
217,712
|
|
$
|
191,819
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
Industrial wood products
|
$
|
-
|
|
$
|
-
|
|
Lawn, garden, pet and other
|
|
-
|
|
|
-
|
|
Seed processing and sales
|
|
-
|
|
|
-
|
|
Industrial tools and clamps
|
|
-
|
|
|
-
|
|
Corporate and administrative
|
|
449,282
|
|
|
32,732
|
|
|
$
|
449,282
|
|
$
|
32,732
|
|
|
|
|
|
|
|
|
Interest expense:
|
$
|
-
|
|
$
|
-
|
The following table lists sales made by the Company to customers which were in excess of 10% of total sales for the years ended August 31:
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Sales
|
$
|
19,679,274
|
$
|
20,544,268
|
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 fiscal years ended August 31:
|
|
|
|
|
|
|
|
2020
|
2019
|
|
|
|
|
|
|
|
United States
|
$
|
43,914,053
|
$
|
43,894,726
|
|
Canada
|
|
735,547
|
|
1,243,239
|
|
Mexico/Latin America/Caribbean
|
|
162,404
|
|
180,664
|
|
Europe
|
|
35,730
|
|
43,851
|
|
Asia/Pacific
|
|
97,529
|
|
83,882
|
|
|
$
|
44,945,263
|
$
|
45,446,362
|
All of the Companys significant identifiable assets were located in the United States as of August 31, 2020 and 2019.
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
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 August 31, 2020, two customers accounted for accounts receivable greater than 10% of total accounts receivable for a total of 48%. At August 31, 2019, two customers accounted for accounts receivable greater than 10% of total accounts receivable for a total of 56%. 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 fiscal year ended August 31, 2020, there were two suppliers which each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $22,249,043. For the fiscal year ended August 31, 2019, there were two suppliers which each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $17,745,475.
16.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Certain cash payments for the years ended August 31, 2020 and 2019 are summarized as follows:
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
Interest
|
$
|
-
|
$
|
-
|
|
Income taxes
|
$
|
741,406
|
$
|
917,000
|
There were no non-cash investing or financing activities during the years presented.
17.
CONTINGENCY
The Company is a named party in a Civil Action in Pennsylvania. The matter is an action seeking compensation for personal injuries and is based on theories of product liability as to Jewett-Cameron. The matter arises out of a dog allegedly escaping from a Jewett-Cameron kennel product and causing personal injuries to three individuals. Jewett-Cameron is currently one of three named Defendants. As of this date, no formal responses have been made and no dates have been established governing the litigation proceedings. This matter is in its early stages making it speculative to predict as to its outcome. It is the Companys intention to vigorously defend the lawsuit. Jewett- Camerons applicable liability insurer is providing a defense covering Jewett-Camerons legal fees and costs.