UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(MARK ONE)

COMMISSION FILE NUMBER 000-19954

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No¨

Yes

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 0x

 Yes

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

Yes ¨ No Nox

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, no par value – 3,498,8993,504,802 common shares as of April 13, 2023.January 16, 2024.

Jewett-Cameron Trading Company Ltd.

Index to Form 10-Q

PART 1 – FINANCIAL INFORMATION

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited – Prepared by Management)

FEBRUARY 28,NOVEMBER 30, 2023

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)

Subsequent Events (Note 15)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in U.S. Dollars)

(Prepared by Management)

(Unaudited)

Supplemental disclosure with respect to cash flows (Note 13)

The accompanying notes are an integral part of these consolidated financial statements.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

FEBRUARY 28,November 30, 2023

(Unaudited)

Jewett-Cameron Trading Company Ltd. (the “Company”) 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. JCLC’s 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,JCC, incorporated September 2013. 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. JCC’s business consists of the manufacturing and distribution of pet, fencing and other products, wholesale distribution to home centers, other retailers, on-line as well as direct to end consumers 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. JC USA provides professional and administrative services, including accounting and credit services, to its subsidiary companies.

During the year ended August 31, 2023, the Company announced that it will end seed cleaning operations at its JCSC subsidiary effective August 31, 2023. JCSC is currently in the process of selling its remaining equipment and preparing to end its seed storage services in preparation of being wound-up.

A number of external factors can adversely affect general workforces, economies and financial markets globally. Examples include, but are not limited to, the COVID-19 global pandemic and political conflict in other regions. It is not possible for the Company to predict the duration or magnitude of adverse results of such external factors and their effect on the Company’s business, financial condition, or ability to raise funds.

Basis of presentation

These unaudited consolidated interim financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America (“US GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC").

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, all of which are incorporated under the laws of Oregon, U.S.A.

All inter-company balances and transactions have been eliminated upon consolidation.

Estimates

The preparation of consolidated financial statements in conformity with US GAAPgenerally 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 Company’s 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 February 28,November 30, 2023, cash and cash equivalents were $268,3893,558,168 compared to $484,46383,696 at August 31, 2022.2023.

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:

Intangibles

The Company’s 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.

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 which is also the functional currency of the Company and its subsidiaries 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 (loss) per share

Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings (loss) per common share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares.

The earnings per share data for the three and six month periods ended February 28, 2023 and 2022 are as follows:

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.

Earnings (loss) per share (cont’d…)

The earnings (loss) for the three month periods ended November 30, 2023 and 2022 are as follows:

The Company has no items of other comprehensive income or loss in any period presented. Therefore, net income or loss presented in the consolidated statements of operations equals comprehensive income or loss.

Stock-based compensation

AllThe Company accounts for stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation” (“ASC 718”). Equity awards are accounted for at their “fair value” which is measured on the grant date for stock-settled awards. For “full-value” awards, fair value is equal to the underlying value of the stock that have time vesting conditions.  

Stock-based compensation to employees are recognized as ancompensation expense in the financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award. Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period, or in the period of grant for awards that vest immediately without any future service condition. For awards that vest over time, previously recognized compensation cost is reversed if the service or performance conditions are not satisfied and such costs are measured atthe award is forfeited. The Company also grants employees and non-employees restricted stock awards (“RSAs”). The fair value of the RSAs is determined using the fair value of the award.common shares on the date of the grant. Forfeitures are accounted for as they occur.

The Company has not adopted a stock option plan and has not granted any stock options.

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 and cash equivalents - 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.

Bank Indebtedness indebtedness- 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.

The estimated fair values of the Company's financial instruments as of February 28,November 30, 2023 and August 31, 2022 is as2023 follows:

The following table presents information about the assets that are measured at fair value on a recurring basis as of February 28,November 30, 2023 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:

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.carry forwards. 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.

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

The Company has evaluated all recently issued, but not yet effective, accounting pronouncements and determined that it does not believe that any, if currently adopted, would have a material effect on the Company’s financial statements.

A summary of inventory is as follows:

A summary of property, plant, and equipment is as follows:

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.

A summary of intangible assets is as follows:

Deferred income tax asset as of February 28,November 30, 2023 of $397,990229,062 (August 31, 20222023 - $24,998319,875) reflect 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.

Bank indebtedness under the Company’s $10,000,000 line of credit as of February 28,November 30, 2023 was $8,500,0000Nil (August 31, 20222023 - $7,000,0001,259,259).

Bank indebtedness, when it exists, is secured by an assignment of accounts receivable and inventory. Interest was previously calculated solely on the one-month LIBOR rate plus 175 basis points. Beginning with the monthly interest payment due March 31, 2022, the Company’s Bank Line of Credit agreement was revised to change the calculation of the interest rate from the one-month LIBOR rate to the one-month Secured Overnight Financing Rate (SOFR). Interest is now calculated based on the one-month SOFR plus 157 basis points, which as of February 28,November 30, 2023 was 6.126.90% (4.55%(5.33% + 1.57%).

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.

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 February 28,November 30, 2023, the maximum number of shares available to be issued under the Plan was 17,07417,251.

During the second quarter of fiscal 2021 ended February 28, 2021, the Board of Directors set the compensation for members of the Board under the Plan. Non-executive directors will be granted 25 common shares for each quarter of service, with the cumulative amount of shares earned each fiscal year to be granted shortly after the close of that fiscal year. Non-executive Directors also received a one-time initial grant of 225 common shares which were issued in December 2020.

During the six-monththree-month period ended February 28,November 30, 2023, the Company issued 3,557no common shares (six(three months ended February 28,November 2022 – 3,557 3,681commonshares) to officers, directors and employees under the RSA. The value of these shares was $23,3030 Nil (2022 - $39,38623,303).

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 six-monththree-month periods ended February 28,November 30, 2023 and 2022 the 401(k) compensation expense were $276,78096,470 and $288,216126,938, respectively.

The Company has three principal reportable segments. 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.

FollowingThe following is a summary of segmented information for the six-monththree-month periods ended February 28,November 30, 2023 and 2022.

The following table lists sales made by the Company to customers which were in excess of 10% of total sales for the sixthree months ended February 28,November 30, 2023 and 2022:

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 sixthree months ended February 28,November 30, 2023 and 2022:

All of the Company’s significant identifiable assets were located in the United States as of February 28,November 30, 2023 and 2022.

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 February 28,November 30, 2023, two customers accounted for accounts receivable greater than 10% of total accounts receivable at 67%65%. At February 28,November 30, 2022, three customers accounted for accounts receivable greater than 10% of total accounts receivable at 69%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 sixthree months ended February 28,November 30, 2023, there were twothree suppliers that each accounted for 10% or greater of total purchases, and the aggregate purchases amounted to $9,895,0114,879,797. For the sixthree months ended February 28,November 30, 2022, there were twothree suppliers that each accounted for 10% or greater of total purchases, and the aggregate purchases amounted to $14,000,0396,671,072.

Certain cash payments for the sixthree months ended February 28,November 30, 2023 and 2022 are summarized as follows:

There were no non-cash investing or financing activities during the periods presented.

In fiscal 2021, the Company initiated arbitration against a former distributor asserting a breach of the distribution agreement and seeking damages. The liability arbitration hearing was held in December 2022. In February 2023, the arbitrator issued its decision and ruled in favor of the Company on the majority of its claims. In September 2023, the Company settled the arbitration for a cash payment of $2,450,000 which was received by the Company in October 2023.

In December 2023, the Company issued 5,903 common shares to officers, directors and employees under the Company’s Restricted Share Plan. The Company has drawn an additionalvalue of these shares was $1,000,00032,064 against its bank line of credit which leaves $500,000 available..

These unaudited financial statements are those of the Company and its wholly owned subsidiaries. In the opinion of management, the accompanying consolidated financial statements of Jewett-Cameron Trading Company Ltd., contain all adjustments, consisting only of normal recurring adjustments, necessary to fairly state its financial position as of February 28,November 30, 2023 and August 31, 20222023 and its results of operations and cash flows for the three and six month periods ended February 28,November 30, 2023 and 2022 in accordance with U.S. GAAP. Operating results for the three and six month periodsperiod ended February 28,November 30, 2023 isare not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2023.2024. Overall, the operating results of JCC are seasonal with the first two quarters of the fiscal year historically being slower than the final two quarters of the fiscal year.

The Company’s operations are classified into three reportable operating segments and the parent corporate and administrative segment, which were determined based on the nature of the products offered along with the markets being served. The segments are as follows:

• Industrial wood products
• Lawn, garden, pet and other
• Seed processing and sales
• Corporate and administration

The industrial wood products segment reflects the business conducted by Greenwood Products, Inc. (Greenwood). Greenwood is a processor and distributor of industrial wood products. A major product category is treated plywood that is sold primarily to the transportation industry, including the municipal and mass transit transportation sectors.

The lawn, garden, pet and other segment reflects the business of Jewett-Cameron Company (JCC), which is a wholesaler of wood products and a manufacturer and distributor of specialty metal products. JCC operates out of a 5.6 acre owned facility located in North Plains, Oregon that includes offices, a warehouse, and a paved yard. This business is a wholesaler, and a manufacturer and distributor of products that include an array of pet enclosures, kennels, and pet welfare and comfort products, proprietary gate support systems, perimeter fencing, greenhouses, and fencing in-fill products made of wood, metal and composites. Examples of the Company’s brands include Lucky Dog®, for pet products; Adjust-A-Gate™, Fit-Right®, Perimeter Patrol®, and Lifetime Post™ for gates and fencing; Early Start, Spring Gardner™, Greenline®, and Weatherguard for greenhouses.greenhouses, and MyEcoWorld® for sustainable bag products. JCC uses contract manufacturers to manufacture these products. Some of the products that JCC distributes flow through the Company’s facility in North Plains, Oregon, and some are shipped direct to the customer from the manufacturer. Primary customers are home centers, eCommerce partners, on-line direct consumers as well as other retailers.

The seed processing and sales segment reflects the business of Jewett-Cameron Seed Company (JCSC). JCSC processes and distributes agricultural seed. Most of this segment’s sales come from selling seed to distributors with a lesser amount of sales derived from cleaning seed.

JC USA Inc. (“JC USA”) is the parent company for the wholly-owned subsidiaries as described above. JC USA provides professional and administrative services, including warehousing, accounting and credit services, to its subsidiary companies.

Tariffs

The Company’s metal products and some of its sustainable bag products are manufactured in China and are imported into the United States. The Office of the United States Trade Representative (“USTR”) instituted new tariffs on the importation of a number of products into the United States from China effective September 24, 2018. These new tariffs are a response to what the USTR considers to be certain unfair trade practices by China. The tariffs began at 10%, and subsequently were increased to 25% as of May 10, 2019. A number of the Company’s products manufactured in China have been subject to duties of 25% when imported into the United States.

These new tariffs were temporarily reduced on many of the Company’s imported products in September 2019 under a deemed one-year exemption. The 25% tariff rate was restored on the Company’s products in September 2020 when the exemption expired.

Results of Operations

Our results in the second quarter of fiscal 2023 were disappointing as we have encountered multiple complications from the broader economic climate. Sales in the second quarter of fiscal 2023 were 42% lower than the sales in the second quarter of fiscal 2022, and sales for the current six-month period were down 23% from the prior year’s period. However, an important factor in the dip was due to the continuing winter weather across much of the United States that caused many of our usual customers to delay their initial Spring merchandise purchases.

The historically bad and unseasonal weather that much of the United States experienced in January and February and extended into the first part of Spring has compelled many of our customers, particularly retail hardware and Big Box stores, to continue devoting inventory and floor space to cold weather products. This pushed back their initial Spring and Summer ordering until the weather improves. This has negatively affected our second quarter revenues and many of the orders from these customers we historically have received and shipped at the end of the period did not occur this year. Although these orders have now begun to arrive and product is being shipped in the third quarter, our past experience with other years where extended winter weather delayed initial seasonal orders is that this is likely to result in a decline in overall sales due to the shortened Spring and Summer sales season.

We recently signed a new sales agreement with one of our major lumber customers that has been progressing well. The nature of this new agreement means we have also changed how we recognize these sales which has caused a large amount of sales that would have previously been recorded in the second fiscal quarter to instead be pushed into the third quarter. Over the entire year, this new arrangement should be positive for the Company as it provides us with more regular and predictable fencing sales with this customer than we had previously. We are also beginning to have discussions with the customer about extending the agreement to more of their distribution centers that we are continuing to serve under our prior sales agreements.

Sales of some of our pet products, particularly larger kennels and crates, were down in the current six months. This was largely due to an issue with one existing customer which restricted our sales to them in the period. The issue has since been resolved and we are getting back on track to ramp up our sales to this customer in the 3^rd quarter of this fiscal year. We have also relaunched our well-reviewed STAY™ Series kennels, which we anticipate will accelerate sales in the second half. During the period a supplier experienced a manufacturing issue with a different one of our pet products. They are correcting this issue which will allow us to resume sales of this product.

We are continuing our efforts to improve operations at both Greenwood and JC Seed. At Greenwood, our primary customers are in the transit sector which is an area that continues to suffer post-COVID 19. We are actively seeking new traders to both bring on new customers in other sectors, such as construction, as well as take advantage of appealing new opportunities for our existing products, such as fabricated panels. At JCSC, the poor weather has had an effect on both pricing and demand for grass seed, which is one of their two largest products.

Our new MyEcoWorld® sustainable bag products will officially launch in the 3^rd quarter. Under our distribution agreement with SECOS Group of Australia, Jewett-Cameron is the exclusive distributor of their MyEcoWorld® sustainable bag products in the US and Canada. We have already begun to fulfill orders from major distributors for grocery store placements for our first set of products to launch. This new sustainable product line fits very well into our goal of bringing premium and innovative products to the market. We are optimistic of the potential of this new product line to grow into a significant segment of our business over time as consumers are increasingly seeking more environmentally friendly alternatives to conventional hydrocarbon derived plastic products. Our success with our compostable poop bag since its launch several years ago indicates these products are less seasonal and can provide positive contributions to our historically lower revenue quarters.

In fiscal 2021, we filed for arbitration against one of our former distributors asserting a breach of the distribution agreement. The arbitration hearing was held in December 2022. In February 2023, the arbitrator issued its decision in favor of the Company on all of our claims. We are seeking damages and our costs. The monetary award is pending, and the amount of any recovery is currently uncertain. Our costs to pursue this action have been sizeable, particularly during the current six-month period. Regardless of the ultimate recovery in this case, Jewett-Cameron will continue to vigorously defend its patents, trademarks and contractual agreements.

Results of Operations

Many of the challenges we experienced during fiscal 2023 continued into the first quarter of fiscal 2024. The changing consumer spending habits caused by worsening economic trends and inflationary pressure in the US economy have resulted in less current demand for a number of our products, particularly in our home improvement and pet lines. Consumers have continued to limit their spending on these types of discretionary products, particularly from the elevated levels that occurred during the COVID-19 pandemic.

Although our sales for the first quarter of fiscal 2024 were lower than our sales in the corresponding first quarter of fiscal 2023, they were higher than the sales recorded in the first quarter of pre-pandemic fiscal 2020. During the current quarter, our margins were negatively affected by the one-time sale of some older lumber inventory at reduced prices to clear warehouse space. Our margins also remain under pressure as we continue to sell through higher cost inventory positionacquired during the pandemic when shipping and raw material costs were much greater than current costs. As that inventory continues to sell through, we expect our margins will improve. The high inflation rate prevailing over the last several years also continues to affect our margins. Our costs rose faster than our selling prices as we are limited in our ability to increase our prices. Such price increases take time to be accepted by our customers and consumers and must be made more gradually. The recent moderating of the inflation rate is helping our efforts to balance our costs with our selling prices. Strategically, we are focusing on growing sales of our higher margin core products and adding complementary new products to the mix, while reducing certain expenses.

Sales of our fencing products continue to meet our forecasted levels. The new sales agreement we signed with one of our major lumber customers in 2023 is performing well. Although the agreement requires us to maintain higher lumber inventory than we typically carried in past periods, it is providing us with more consistent and predictable sales and increased the availability of our products in those stores. Our current lumber and fencing hardware inventory remains at our desired positions.

Pet product sales continue to lag compared to prior periods. The pet industry overall remains in a downturn from the surge of sales that occurred during the pandemic when many Americans remained at home. Inflation and a sharp reduction in American’s discretionary spending are also negatively affecting demand. As a result, many retailers have high levels of inventory on hand, and have limited their new orders of pet products. We expect these conditions to persist in fiscal 2024 until those retailers are able to work through that existing inventory. We are committed to maintaining our list prices on our primary pet products as there is no urgency to move this inventory since it will not degrade or spoil over time. For our slower moving pet products, we continue to explore opportunities to accelerate sales in those items.

Greenwood’s industrial lumber sales increased by 87% over the comparative quarter in fiscal 2023. Greenwood’s primary customers are in the transit sector which is beginning to rebound from the COVID-19 pandemic as more workers return to the office. We recently hired a new trader in September. This will expand our marketing and sales capabilities not only in our current sectors, but will also help develop our entry into new markets, such as in construction.

The official launch of our MyEcoWorld® sustainable bag products occurred in the 4^th quarter of fiscal 2023. This represents an important new opportunity for the Company, as these products are consumables and offer recurring, non-seasonal sales that can provide revenue during our historically lower revenue quarters. Sales are beginning to grow. Though overall unit volumes are still relatively small, it does indicate that consumers are receptive to new sustainable alternatives to hydrocarbon derived plastic products. Although we are marketing these products to some of our existing home improvement and pet customers, many of the primary retailers for these products are not current customers. We are actively working to connect with these new outlets and present them with these innovative products. Building these new relationships takes time to establish and drive sales momentum, but we are encouraged by our progress and the positive consumer response we have received since the launch.

The announced restructuring of Jewett-Cameron Seed remains on schedule for the end of calendar 2023. During fiscal 2023, management concluded a comprehensive strategic review of the second quarter remainsseed segment. As a result of this review, the Board of Directors made the difficult decision to end operations at JCSC. JCSC had not reported a full-year profit since fiscal 2020, and its business model was no longer sustainable due to fewer seed growers in the area, less demand for its seed marketing and sales services, and much higher than our historical position. operating costs. Seed cleaning operations ended as of August 31, and all the remaining seed inventory has been sold. Seed storage operations are anticipated to end December 31. Most of the segment’s equipment has also been sold, with the remainder expected to be disposed of over the next several months. Some of the JCSC staff were moved to other roles within the Company, and transition services were offered for the remainder who were terminated effective August 31, 2023.

JCSC owns 11.7 acres of land and 105,000 square feet of buildings in Hillsboro, Oregon. The land is very well located at a major interchange immediately adjacent to busy US Highway 26, which is a primary route linking Metro Portland to its Northwest suburbs and then to the Coast beaches. Its close proximity to Portland has meant that since 1990, Hillsboro has been one of the fastest growing cities in Oregon. Much of its original farmland has already been converted into residential areas and new business and industrial developments, including high-technology campuses. JCSCs land, which lies west of downtown Hillsboro, is currently zoned for agricultural use. However, there have been ongoing governmental discussions about the possibility of extending the Urban Growth Boundary (UGB) further to the west. These potential boundary changes, if they were to occur, could encompass JCSC’s land and allow for a rezoning to residential, commercial or industrial use. However, the process to change the UGB requires approval by the regional government council or the Governor of the State of Oregon. It may also require various other approvals and certain legal and regulatory changes. A voter referendum has been approved for a May election that, if passed, could significantly delay the approval and further submission of the UGB for various agency approval. The Company is investigating with the County all appropriate actions it could take to have the property zoned that could maximize its longer-term value. There is no guarantee this process will be initiated, or ultimately be successful. If the UGB does not change, it would restrict the permitted uses for the land and limit its value. Although the property has not been listed for sale, we are receiving unsolicited inquiries from third-parties interested in the potential purchase of the land and buildings. The ultimate disposition of these assets has not been determined but will be studied by the Board before any final decision is reached.

During the period,quarter, we successfully settled the arbitration we filed against one of our new fencing salesformer distributors in 2021 for breach of a distribution agreement. Under the settlement agreement, we received a one-time cash payment of $2,450,000 in October. This payment covered our substantial legal fees and some of our losses due to the breach. We are pleased to have settled the case and that we will no longer have to expend time and money pursuing this case. Our costs to pursue this action have been sizeable and were included in our selling, general and administrative costs and reduced our income from operations accordingly. Even though the costs in this case were material, we believe it is critical to defend our valuable intellectual property and will take action against any future infringements of our patents, trademarks and contractual agreements.

We have fully repaid all of our current borrowing against our bank line of credit and, as of November 30^th, all $10 million of the line is available. The Company’s revenues and cash flow continue to be seasonal and highly variable, with the 3^rd and 4^th quarters of the fiscal year being much busier than the 1^st and 2^nd quarters due to the Company’s current product offerings. Therefore, the availability of a line of credit is important to provide financial flexibility, and management expects to continue to maintain a credit line and draw against it as needed. We are studying the possibility of restructuring or replacing the existing line, as different credit arrangements may potentially provide the Company with greater financial flexibility.

Inventory as of November 30^th was approximately $17.5 million, which was a decline of $825 thousand from August 31^st. With the exception of our slower moving pet products, we are now approaching our desired inventory levels of many of our core products, including lumber. Because of the recent change to our lumber supply agreement with a major customer, we are required to maintain a higher level of lumber inventory than we have previously to ensure the availability of these products for this customer. We have begun to increase our orders and in-transit inventory ahead of the annual extended factory shutdowns in China for the Chinese New Year. This will allow us to build uphave adequate product on hand to meet our initial cedar fencing position, but this extra inventory is now being drawn down as our customer begins shipping product to their storesanticipated orders for the Spring season. The company is well positioned to fulfill both its current and its anticipated orders during the Spring and Summer seasons. Our cash flow and working capital should improve in the second halfupcoming start of the fiscal year as seasonal sales pick up while our inventory levels are expected to be reduced by our year-end of August 31^st.outdoor selling season.

Gross margin forThe Company recently added two new members to the current six-month period was 23.1%. ThisBoard of Directors. Subriana Pierce and Ian Wendler have extensive knowledge and experience in consumer product development, marketing and sales. These are skills which the Company’s Governance Committee actively sought and recruited and which the Board believes will be highly valuable to the Company.

September 2023 marked the Company’s 70^th anniversary since its original incorporation. Management is an improvement over the 21.8% margin recorded in comparable prior year’s period, and the 21.9% margin we had for all of fiscal 2022. Both transportation and raw material costs have been declining from the highs experienced in fiscal 2022. We are continuing to work offthrough the current challenging economic climate by improving our higher priced inventory acquired when freight costs were at their highest. As this inventory is replaced,operations, managing customer relationships, and sharpening our costs of goods will decline. Inflation is also beginning to moderate, which should further allowfocus on our selling prices to catch up tooperational strengths, including our costs. This was a definite problem in 2022 as we were unable to fully pass through our rapidly rising costs to our customers.

The COVID-19 pandemic massively altered markets worldwide and caused significant distortions at every level, including significant shifts in buying patterns of suppliers, retailers and customers. As a result, the buying patternscore product lines. We recently negotiated new purchase terms with several of our customers have suddenly become very difficultmajor suppliers. These new arrangements will shorten the time from our ordering to predict as they themselves are struggling with the significantly changed buying practices of their consumer customers. This has disrupted our forecasting and traditional year-over-year comparisons and caused us to significantly revise our planning and sales models. Our integrated ERP software which became operational in February 2021 is providing us with a better understanding of these newly altered patterns which we are using to better predict our optimal ordering and inventory requirements in future periods.

Our management is continuing its focus on growing our core products and strengthening our relationships with our customers and suppliers. The endreceipt of the pandemic emergency has allowed us to resumeproduct at our regular practice of meeting in person withOregon warehouse, while also improving our customers and suppliers to jointly develop strategies to navigate the difficult market conditions. We also continue to discuss significant opportunities for both new and existing products. The significant investments we made in our facilities, technologies, and specialty personnel were essential in order to modernize Jewett-Cameron. They have significantly improved our ability to manage our business and confront the rapidly changing economic climate. This will ultimately result in a more focused and optimized product line, more efficient shipping and receiving, andinventory management, reducing our costs.

Post-pandemic economic conditions incapital outlays and enhancing our cash flow. The closure of JCSC and conclusion of the US have been challengingexpensive arbitration against its former distributor should also reduce our operating cash requirements, and are expected to continue to be difficult during the second half of fiscal 2023. Although the rate of inflationary growth has begun to slow, costs of food, energy and housing currently remain much higher than the rates of recent years. This is restricting consumers’ discretionary income and willingness to spend on consumer goods which is echoed by many national retailers in their own statements and forecasts. This may restrainimprove our ability to grow sales in the near-term. Our management is actively addressing these issues, and we remain optimistic about the Company’s ability to successfully implement its strategyoperating margins going forward.

Three Months Ended February 28,November 30, 2023 and 2022

For the three months ended February 28,November 30, 2023, sales were $8,143,421, which was a decrease of $5,917,330, or 42%, from$9,805,841 compared to sales of $14,060,751$12,577,500 for the three months ended February 28,November 30, 2022. This is a decrease of $2,771,659, or 22%.

Sales at JCC were $7,252,299$8,622,972 compared to sales of $11,619,082 for the three months ended February 28, 2023 compared to sales of $12,357,478 for the three months ended February 28, 2022. This representsNovember 30, 2022, which was a decrease of $5,105,179,$2,996,110, or 41%26%. A primary reason forCurrent sales have been negatively affected by reduced discretionary spending by American consumers, particularly in the decline was the extremely coldpet and wet weather that persisted across all of the United States during the quarter. This caused many of our customers, including the big box retailers, to significantly delay their initial Spring orders as they continued to focus on sales of winter related products to meet consumer demand. Quarter-over-quarterhome improvement sectors. Sales comparisons were also negatively affected by our recent switch to a new sales agreementone-time order for fencing for one of our major customers. This changeover includes a changekennels in the timing of when we recognize revenue tolast year’s first quarter which was not repeated in this customer and was responsible for a major portion of the overall decline in sales during theyear’s quarter. However, it is likely that many of those sales which previously would have occurred in the second quarter will now be recorded in third and fourth quarters as those stores receive the product in their seasonal rotation of their in-store inventory to Spring and Summer products, including fencing and related hardware. Operating loss for the current quarterJCC was ($1,415,462)1,064,341) compared to an operating profitloss of $129,841($156,651) for the quarter ended February 28,November 30, 2022. TheOverall, the operating results of JCC are historically seasonal with the first two quarters of the fiscal year historically being slower than the final two quarters of the fiscal year.