JEWETT CAMERON TRADING CO LTD - Quarter Report: 2003 February (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

                                  (Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2003

OR

 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________________to______________________

Commission file number: 0-19954

JEWETT-CAMERON TRADING COMPANY, LTD.

(Exact name of registrant as specified in its charter)

32275 N.W. Hillcrest, North Plains, Oregon 97133

(Address of Principal Executive Offices)

Registrant’s telephone number, including area code: (503) 647-0110

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 since May 16, 1992 and (2) has been subject to the above filing requirements for the past 90 days.

Yes  X   No ___

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ___ No ___

APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of February 28, 2003.  Common Stock, no par value     

1,538,408 Shares.

Jewett-Cameron Trading Company Ltd.

Index to Form 10-Q

PART 1 – FINANCIAL INFORMATION

Item 1. Financial Statements

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED FINANCIAL STATEMENTS

 (Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

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)

(Unaudited - Prepared by Management)

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

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES

(Expressed in U.S. dollars)

(Unaudited - Prepared by Management)

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)

(Unaudited - Prepared by Management)

Supplemental disclosures with respect to cash flows (Note 13)

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)

(Unaudited - Prepared by Management)

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)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

1.

NATURE OF OPERATIONS

The Company was incorporated under the Company Act of British Columbia on July 8, 1987.

The Company through its subsidiaries operates out of facilities located in North Plains, Oregon and Ogden, Utah.  The Company operates as a wholesaler of lumber and building materials to home improvement centres located primarily in the Pacific and Rocky Mountain regions of the United States; as a processor and distributor of industrial wood and other specialty building products principally to original equipment manufacturers; as an importer and distributor of pneumatic air tools and industrial clamps throughout the United States, and as a processor and distributor of agricultural seeds in the United States.

2.

SIGNIFICANT ACCOUNTING POLICIES

Generally accepted accounting principles

These consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America, which are not materially different from generally accepted accounting principles utilized in Canada.

In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary (consisting only of normal recurring accruals) to present fairly the financial information contained therein.  These statements do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with the audited financial statements of the Company for the year ended August 31, 2002.  The results of operations for the period ended February 28, 2003 are not necessarily indicative of the results to be expected for the year ending August 31, 2003.

Principles of consolidation

These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, The Jewett-Cameron Lumber Corporation, Jewett-Cameron Seed Co., Greenwood Products, Inc. and MSI-PRO Co., all of which are incorporated under the laws of Oregon, U.S.A.

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

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles 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.  Actual results could differ from those estimates.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Revenue recognition

The Company recognizes revenue from the sales of building supply products, industrial wood and other specialty products and tools, when the products are shipped and the ultimate collection is reasonably assured.  Revenue from the Company's seed operations is generated by the provision of 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 and products sold and collection of the amounts is reasonably assured.

Currency

These financial statements are expressed in U.S. dollars as the Company's operations are based predominately in the United States.  Any amounts expressed in Canadian dollars are indicated as such.

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

Inventory

Inventory is recorded at the lower of cost, based on the average cost method and net realizable value.

Capital assets and depreciation

Capital assets are recorded at cost and the Company provides for depreciation over the estimated life of each asset on a straight-line basis over the following periods:

Foreign exchange

The Company's functional currency for all operations worldwide is the U.S. dollar.  Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year.  Statement of operations accounts are translated at average rates for the year.  Gains and losses resulting from foreign currency translations are included in current results of operations.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Earnings per share

In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").  Under SFAS 128, basic and diluted earnings per share are to be presented. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per share take into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares.

The earnings per share data for the periods ended February 28 is summarized as follows:

Employee stock option plan

Financial Accounting Standards Board statement No. 123 (Accounting for Stock-Based Compensation) encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted.  The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (Accounting for Stock Issued to Employees) and related interpretations and to provide additional disclosures with respect to the pro-forma effects of adoption had the Company recorded compensation expense as provided in SFAS 123.

In accordance with APB-25, compensation costs for stock options is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock.  Generally, the exercise price for stock options granted to employees equals or exceeds the fair market value of the Company's common stock at the date of grant, thereby resulting in no recognition of compensation expense by the Company.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Employee stock option plan (cont’d…)

The Company accounts for stock based compensation associated with the repricing of employee stock options in accordance with the provisions of FASB Interpretation No. 44, “ Accounting for Certain Transactions involving Stock Compensation ” (“FIN 44”).  For accounting purposes, the repricing of existing stock options requires variable accounting for the new options granted from the date of modification.  Variable accounting requires that the intrinsic value, being the excess of the current market price at the end of each reporting period in excess of the exercise price of the repriced options, be expensed as non-cash stock based compensation expense, until such time as the repriced options are exercised, expire or are otherwise forfeited.  Any increase in the intrinsic value of the repriced options will decrease reported earnings, and any subsequent decreases in value will increase reported earnings.

If under Financial Accounting Standards Board Statement No. 123 (Accounting for Stock-Based Compensation) the Company determined compensation costs based on the fair value at the grant date for its stock options, net earnings and earnings per share would have been reduced to the following pro-forma amounts:

Post retirement benefits

Post retirement benefits are accounted for on an accrual basis.  Any difference between net periodic post retirement benefit cost charged against income and the amount actually funded is recorded as an accrued or prepaid cost.  This policy is consistent with Financial Accounting Standards No. 106, "Employers Accounting for Post Retirement Benefits Other than Pensions".

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

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:

Bank indebtedness

The carrying amount approximates fair value due to the short-term nature of the obligation.

Cash and short-term investments

The carrying amount approximates fair value because of the short-term maturity of those instruments.

Accounts receivable

The carrying value of accounts receivable approximates fair value due to the short-term nature and historical collectability.

Accounts payable

The carrying value of accounts payable approximates fair value due to the short-term nature of the obligations.

The estimated fair values of the Company's financial instruments are as follows:

Comparative figures

Certain comparative figures have been reclassified to conform with the presentation adopted for the current period.

Income taxes

Income taxes are provided in accordance with SFAS No. 109, "Accounting for 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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Income taxes (cont’d…)

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 goods sold in the Consolidated Statement of operations. All costs billed to the customer are included as revenue in the Consolidated Statement of operations.

New accounting pronouncements

In July 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS 146 requires that a liability for cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002.

In November 2002, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-21 (EITF00-21), "Revenue Arrangements with Multiple Deliverables." EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which the vendor will perform multiple revenue generating activities. The provisions of EITF 00-21 will apply to revenue arrangements entered in fiscal periods beginning after June 15, 2003.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others." FIN 45 requires that a liability be recorded in the guarantor's balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31 2002. The disclosure requirements of FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002.

In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure." SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

New accounting pronouncements (cont’d…)

In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." FIN 46 requires an investor with a majority of the variable interests in a variable interest entity to consolidate the entity and also requires majority and significant variable interest investors to provide certain disclosures. A variable interest entity is an entity in which the equity investors do not have a controlling interest or the equity investment at risk is insufficient to finance the entity's activities without receiving additional subordinated financial support from the other parties. We are currently reviewing our investment portfolio to determine whether any of our investee companies are variable interest entities.

The adoption of these new pronouncements is not expected to have a material effect on the Company's financial position or results of operations.

3.

INVENTORY

4.

CAPITAL ASSETS

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

4.

CAPITAL ASSETS (cont’d…)

In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future undiscounted 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.  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.

DEFERRED INCOME TAXES

Deferred income taxes of $44,700 (August 31, 2002 - $171,900) relate principally to timing differences between the accounting and tax treatment of income, expenses, reserves and depreciation.

6.

BANK INDEBTEDNESS

Bank indebtedness is secured by an assignment of accounts receivable and inventory.  Interest is calculated at either prime or the libor rate plus 190 basis points.

7.

CAPITAL 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.

On February 28, 2003, the Company implemented a 3:2 stock split on its common shares.  The number of shares outstanding increased from 1,025,605 common shares to 1,538,408 common shares.  All share and per share amounts have been restated to give retroactive recognition to the stock split for all periods presented.

Treasury stock

Treasury stock is recorded at cost.  During the periods ended February 28, 2003 and 2002, the Company repurchased 5,400 (8,100 post 3:2 stock split) and 20,000 (30,000 post 3:2 stock split) shares, respectively, at an aggregate cost of $47,704 and $139,601, respectively.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

8.

EMPLOYEE STOCK OWNERSHIP PLAN

The Company sponsors an employee stock ownership plan ("ESOP") that covers all U.S. employees who are employed by the Company on August 31 of each year and who have at least one thousand hours with the Company in the twelve months preceding that date.  The ESOP grants to participants in the plan certain ownership rights in, but not possession of, the common stock of the Company held by the Trustee of the Plan.  Shares of common stock are allocated annually to participants in the ESOP pursuant to a prescribed formula.  The Company accounts for its ESOP in accordance with SOP-93-6 (Employers' Accounting for Employee Stock Ownership Plans).  The Company records compensation expense equal to the market price of the shares acquired on the open market.  Any dividends on allocated ESOP shares are recorded as a reduction of retained earnings.

9.

STOCK BASED COMPENSATION EXPENSE

Following is a summary of the status of the plan during 2003, 2002 and 2001:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

9.

STOCK BASED COMPENSATION EXPENSE (cont’d…)

Stock options

The Company has a stock option plan under which stock options to purchase securities from the Company can be granted to directors and employees of the Company on terms and conditions acceptable to the regulatory authorities of Canada, notably the TSX Exchange ("TSX"), 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 may be granted from time to time, provided that stock options in favour 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.

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.

Proceeds received by the Company from exercise of stock options are credited to capital stock.

Following is a summary of the status of options outstanding at February 28, 2003:

The Company has elected to follow APB Opinion No. 25 (Accounting for Stock Issued to Employees) in accounting for its employee stock options.  Accordingly, compensation cost for stock options is measured as the excess, if any, of quoted market price of the Company's stock at the date of grant over the option price.  During the period ended February 28, 2003, $10,865 was recovered for stock based compensation as a result of the quarterly recalculation of the options that were repriced during fiscal 2002.  Stock based compensation recognized during the period ended February 28, 2002 was $20,340.  These amounts were allocated to wages and employee benefits in the accompanying statement of operations.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

9.

STOCK BASED COMPENSATION EXPENSE (cont’d…)

The weighted average estimated fair value of stock options granted during the periods ended February 28, 2003 and 2002 were Cdn$Nil and $2.67 per share, respectively.  These amounts were determined using the Black-Scholes option pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the expected life of the option.  The assumptions used in the Black-Scholes model were as follows for stock options granted:

10.

CONTINGENT LIABILITIES AND COMMITMENTS

a)

On March 1, 2002 the Company entered into an agreement with Greenwood Forest Products, Inc. (“Greenwood”) to acquire certain assets of Greenwood.  The assets being acquired consist of nearly $7 million of inventory, purchased in seven installments over the next two years for a price equal to the seller’s cost plus 2%; furnishings, equipment and supplies for $260,000 payable at closing (paid); and a license to use all of the intangible assets of the seller for a five year term, with an option to purchase the intangible assets for a nominal amount of $1,000, payable at closing (paid).  Subsequent to February 28, 2003, the company completed the final inventory installment purchase by acquiring inventory form Greenwood in the amount of $2,693,399.

Greenwood is in the business of processing and distribution of industrial wood and other specialty building products, principally to original equipment manufacturers.

b)

At February 28, 2003, the Company had an un-utilized line-of-credit of approximately $970,000.

11.

SEGMENTED INFORMATION

The Company has four principal operating segments: the sales of building materials and industrial wood products to home improvements centres and original equipment manufacturers in the United States; the sale of pneumatic air tools and industrial clamps in the United States; and the processing and sales of agricultural seeds in the United States.  These operating segments were determined based on the nature of the products offered.  Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly 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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

11.

SEGMENTED INFORMATION (cont’d…)

Following is a summary of segmented information for the six month periods:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

FEBRUARY 28, 2003

11.

SEGMENTED INFORMATION (cont'd…)

For the six month periods ended February 28, 2003 and 2002 the Company made sales of $2,907,453 (2002 - $3,317,473) and $Nil (2002 - $1,544,073) to customers of the building material segments which were in excess of 10% of total sales for the six month periods.

12.

CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.  The Company places its cash and cash equivalents with high quality financial institutions and limits the amount of credit exposure with any one 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, 2003, no customers accounted for total accounts receivable greater than 10%.  At February 28, 2002, two customers totalling $573,340 and $143,928 accounted for accounts receivable greater than 10% of total accounts receivable.  The Company controls credit risk through credit approvals, credit limits, and monitoring procedures.  The Company performs credit evaluations of its commercial customers but generally does not require collateral to support accounts receivable.

13.

SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS

There were no significant non-cash transactions for the six month periods ended February 28, 2003 and 2002.

Item 2.

Management’s Discussion and Analysis of Financial Condition and

Results of Operations.

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, 2003 and 2002 and its results of operations and its cash flows for the three month period ended February 28, 2003 and 2002 and for the six month period ended February 28, 2003 and February 28, 2002 in accordance with US GAAP.  Operating results for the three month period ended February 28, 2003 and the six month period ended February 28, 2003 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2003.

On March 1, 2002 the Company entered into an agreement with Greenwood Forest Products, Inc. to acquire certain assets of Greenwood, which included nearly $7 million of inventory, furnishings, equipment and supplies for $260,000 and a license to use all of the intangible assets of the seller for a five year term, with an option to purchase the intangible assets for a nominal amount of $1,000, payable at closing (paid).  Subsequent to February 28, 2003, the company completed the final inventory installment purchase by acquiring inventory form Greenwood in the amount of $2,693,399.  The acquisition of the certain assets of Greenwood Forest Products Inc is now complete.  Greenwood’s inventory now counts for approximately 80% of total inventory for the Company.  Greenwood also now contributes significantly to the Company’s assets, now accounting for approximately 52% of total consolidated assets, approximately 25% of total liabilities and approximately 83% of consolidated sales.

The Company’s number of days in receivables is approximately 51 days as at February 28, 2003, which was about he same as at August 31, 2002.  Overall, in the past year, the number of days in receivables has increased due to the fact that many of Greenwood Products Inc.’s customers have a net 60-day policy.  

The Company’s number of says in inventory is approximately 118 as at February 28, 2003 in comparison to approximately 40 days as at August 31, 2002.  The primary reason for the increase is due to the Company’s expedited purchases of Greenwood’s Forest Products Inc.’s inventory, as well as due to the slowing economy.

RESULTS OF OPERATIONS

Three months ended February 28, 2003 and 2002:

Jewett Cameron’s operations are classified into four principle industry segments: sales of building materials, sales of wood products with industrial and OEM applications, sales of industrial tools and sales of processed agricultural seeds and grain. Sales of building materials consist of wholesale sales of lumber and building materials in the United States.  Sales in this category are attributable to Jewett Cameron Lumber Corporation, a wholly owned subsidiary of the Company, and consist primarily of home improvement products such as decking materials, fencing materials, lattice work, arbors, garden seats, etc. These sales occur year-round; however, they are greater in the Spring and Summer months. Sales of wood products with industrial and OEM applications consist of wholesale sales of wood products primarily to the transportation and recreational boating industries in the United States. Sales in this category are attributable to Greenwood Products, Inc., a wholly owned subsidiary of Jewett Cameron Lumber Corporation. Approximately 50% to Greenwood Product’s sales are attributable to the recreational boating industry and are generally stronger during the Spring and Summer months. Sales of industrial tools consist of the distribution of pneumatic air tools and industrial clamps in the United States. Sales in this category are attributable to MSI-PRO Co., a wholly owned subsidiary of Jewett Cameron Lumber Corporation.   Sales of processed seeds and grain consist of the distribution of processed agricultural seeds and grain in the United States. Sales in this category are attributable to Jewett Cameron Seed Company, a wholly owned subsidiary of Jewett Cameron Lumber Corporation. Harvest months in the Northwest are June through September, and, consequently, a greater portion of the revenues attributable to Jewett Cameron Seed Company occur during this time of year. The Company’s major distribution centers are located in North Plains, Oregon and Ogden, Utah.

For the second quarter of the current fiscal year, ended February 28, 2003, sales increased 351% to $11,999,598 compared to $3,414,881 for the same quarter of the previous year.

The principal reason for the 351% increase in sales was the contribution of Greenwood Products Inc., a wholly owned subsidiary of Jewett-Cameron Lumber Company, which was begun in March of last year when the Company purchased the business and certain assets of Greenwood Forest Products Inc. Sales of industrial wood products, through Greenwood Products Inc., accounted for $10,010,829 in the second quarter of Fiscal 2003 as compared to no sales during the second quarter of Fiscal 2002.

Sales of building materials were $1,166,683 for the quarter, down 54% compared to sales of $2,527,008 for the second quarter of last year. The sale of building materials is accomplished through the activities of Jewett Cameron Lumber Company, which is a wholly owned subsidiary of Jewett Cameron Trading Company Ltd. Management attributes the decrease in the sales of building materials to the current downturn in the economy which is resulting in consumers spending less money on home improvement projects.

Sales of pneumatic tools and industrial clamps were $178,557 for the second quarter compared to $172,311 for the second quarter of last year, an increase of about 4%. The sale of pneumatic tools and industrial clamps is accomplished through the activities of MSI-PRO which is a wholly owned subsidiary of Jewett Cameron Lumber Company. The Company hired new sales personnel since the second quarter of the last fiscal year in an effort to reverse the declining sales trend in this area, which was occurring at the time. The efforts of the newly hired sales staff has resulted in the stronger sales evidence during the second quarter of Fiscal 2003.

Sales of processed seeds and grain were $643,529 for the second quarter compared to $715,562 for the second quarter of last year, a decrease of slightly over 10%. The sales of processed seeds and grain are accomplished through the activities of Jewett Cameron Seed Company, which is a wholly owned subsidiary of Jewett Cameron Lumber Company.  The decrease in sales, which occurred in the second quarter of Fiscal 2003 as compared to the second quarter of Fiscal 2002, was due primarily to poor growing conditions resulting from unfavorable weather.   

Cost of sales accounted for 85% of sales for the second quarter compared to 73% for the second quarter of last year, an increase of 12%.  The increase was primarily attributed to the addition of the activities of Greenwood Products, Inc. who experience lower margins on sales due to higher delivery and product cost.

General and administrative expenses accounted for 13% of sales for the second quarter compared to 23% for the second quarter of last year, a decrease of 10%.  The decrease was primarily due to the Company’s restructuring of its sales force, which cut costs during the current quarter, as well as due to the increase in sales brought by the addition of Greenwood Products Inc. General and administrative expenses for the Company were $1,566,335 for the second quarter up from $775,255 for the second quarter of the last fiscal year.  The primary reason for the increase of $791,080 was the addition of the activities of Greenwood Products, Inc. during the third quarter of Fiscal 2002. The activities of Greenwood Products, Inc. resulted in an increase in depreciation and amortization of $23,653; an increase in general and administrative expenses of $791,080:  an increase in employee wages and benefits of $594,505; and, an increase in warehouse expenses and supplies of $65,607.

Income tax expense for the quarter was $65,200 in comparison to $62,000 for the second quarter of last year.  The Company estimates income tax expense for the quarter based on combined federal and state rates that are currently in effect.  The increase in income tax expense is due to higher net income for the current quarter.

Net income for the quarter was $73,635 which represents a 3% increase over the second quarter of the last fiscal year when net income was $71,639.  The increase in net income was due primarily to the sales of Greenwood Products, Inc. and the slight increase in sales of industrial tools.

Earnings per share were $0.05 for the second quarter of Fiscal 2003 compared to $0.05 for the second quarter of fiscal 2002.

Six Months Ended February 28, 2003 and 2002

For the first six months of the current fiscal year, ended February 28, 2003, sales increased 339% to $25,499,518 compared to $7,520,983 for the same period of the previous fiscal year.

The principal reason for the 339% increase in sales was the contribution of Greenwood Products Inc., as described above. Sales of industrial wood products, through Greenwood Products Inc., accounted for $21,277,405 for the first six months of Fiscal 2003 as compared to no sales during the first six months of Fiscal 2002.

Sales of building materials were $2,447,441 for the period, a decrease of 57% compared to sales of $5,660,571 for the first six months of Fiscal 2002. The sale of building materials is accomplished through the activities of Jewett Cameron Lumber Company, which is a wholly owned subsidiary of Jewett Cameron Trading Company Ltd. As stated earlier, management attributes the decrease in the sales of building materials to the current downturn in the economy which is resulting in consumers spending less money on home improvement projects.

Sales of pneumatic tools and industrial clamps were $426,025 for the period as compared to $363,338 for the same period of last year, an increase of about 17%. As was the case for the second quarter of Fiscal 2003 as compared to the second quarter of Fiscal 2002, the efforts of the newly hired sales staff resulted in the stronger sales evidenced during this period as compared to the prior like period.

Sales of processed seeds and grain were $1,348,647 for the period compared to $1,497,074 for the first six months of the last fiscal year, a decrease of slightly over 11%. The sales of processed seeds and grain are accomplished through the activities of Jewett Cameron Seed Company, which is a wholly owned subsidiary of Jewett Cameron Lumber Company.  As stated earlier, the decrease in sales, which occurred in the period as compared to the first six months of Fiscal 2002, was due primarily to poor growing conditions resulting from unfavorable weather.   

Cost of sales accounted for 85% of sales for the current period compared to 74% for the six month period of the last year, an increase of 11%.  As stated earlier, the increase was primarily attributed to the addition of the activities of Greenwood Products, Inc. who experience lower margins on sales due to higher delivery and product cost.

General and administrative expenses accounted for 14% of sales for the current period compared to 22% for the six month period of last year, a decrease of 8%.  As stated earlier, the decrease was primarily due to the Company’s restructuring of its sales force, which cut costs during the current quarter, as well as due to the increase in sales brought by the addition of Greenwood Products Inc

General and administrative expenses for the Company were $3,534,106 for the first six months of Fiscal 2003 as compared to $1,627,174 for the first six months of the last fiscal year.  The primary reason for the increase of $1,906,932 was the addition of the activities of Greenwood Products, Inc. during the third quarter of Fiscal 2002. The activities of Greenwood Products, Inc. resulted in an increase in depreciation and amortization of $35,039; an increase in insurance of $22,915; an increase in office and miscellaneous expenses of $105,748; an increase in professional fees of 67,805; an increase in rent of $91,904; an increase in telephone expenses of $33,588; an increase in travel, entertainment and advertising of $55,106; an increase in general and administrative expenses of $1,906.932; an increase in employee wages and benefits of $1,399,394; and, an increase in warehouse expenses and supplies of $211,880.

Income tax expense for the current period was $127,200 in comparison to $127,000 for the six month period of last year.  The Company estimates income tax expense for the quarter based on combined federal and state rates that are currently in effect.  Although income before income taxes for the current period increased by $22,252 in comparison to the six month period of last year, income tax expense remained relatively the same due to several non-taxable items that are included as part of net income for the current period.

There are no additional categories of expenses associated with Greenwood Products, Inc. as its operations are similar to those of Jewett-Cameron Lumber Corporation; Jewett-Cameron Seed Company; and, MSI-PRO Corp.

Net income for the six months ended February 28, 2003 was $187,183 which represents a 13% increase over the first six months of the last fiscal year when net income was $165,131.  The increase in net income was due primarily to the sales of Greenwood Products, Inc. and the increase in sales of industrial tools.

Earnings per share were $0.13 for the first six months of Fiscal 2003 compared to $0.11 for the first six months of fiscal 2002, an increase of 18%.

LIQUIDITY AND CAPITAL RESOURCES

As of February 28, 2003 the Company had working capital of $4,930,988, which represented an increase of $547,818 as compared to the working capital position of $4,383,531 as of August 31, 2002.  The primary reason for the increase in working capital was an increase of $3,554,621 in inventory. During the first six months of Fiscal 2003, cash and cash equivalents decreased by $272,454; accounts receivable, net of allowance decreased by $424,167; and, prepaid expenses increased by $110,538. Bank indebtedness increased by $4,062,861; however, accounts payable and accrued liabilities decreased by $1,641,780.

Accounts Receivable and Inventory represented 97.1% of current assets and both continue to turn over at acceptable rates.

External sources of liquidity include a bank line from the United States National Bank of Oregon.  The total line of credit available is $8.0 million of which there was an outstanding balance on February 28, 2003 of $7,028,500 and an outstanding balance as of August 31, 2002 of 2,965,639.

Based on the Company’s current working capital position, its policy of retaining earnings, and the line of credit available, the Company has adequate working capital to meet its needs during the current fiscal year.

Business Risks

This quarterly report includes “forward–looking statements” as that term is defined in Section 21E of the Securities Exchange Act of 1934. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “anticipates,” or “hopeful,” or the negative of those terms or other comparable terminology, or by discussions of strategy, plans or intentions. For example, this section contains numerous forward-looking statements.  All forward-looking statements in this report are made based on management’s current expectations and estimates, which involve risks and uncertainties, including those described in the following paragraphs.

•

Demand for company products may change;

•

Production time and the overall cost of products could increase if any of the primary suppliers are lost or if any primary supplier increased the prices of products;

•

Fluctuations in quarterly and annual operating results may make it difficult to predict future performance;

•

Shareholders could experience significant dilution;

•

The Company could lose its significant customers;

•

The Company could experience delays in the delivery of its products;

•

A loss of the bank credit agreement could impact future liquidity;

•

The limited daily trading volume of the Company’s common stock could make it difficult for investors to purchase additional shares or sell currently held shares.

Demand for Company products may change:

In the past the Company has experienced decreasing annual sales in the areas of home improvement products and industrial tools. The reasons for this can be generally attributed to worldwide economic conditions, specifically those pertaining to lumber prices; demand for industrial tools; and, consumer interest rates. If economic conditions continue to worsen or if consumer preferences change, the Company could experience a significant decrease in profitability.

Production time and the overall cost of products could increase if any of the primary suppliers are lost or if a primary supplier increased the prices of raw materials:

The Company’s manufacturing operation, which consists of cutting fencing material to specific sizes and shapes, depends upon obtaining adequate supplies of lumber on a timely basis. The results of operations could be adversely affected if adequate supplies of raw materials cannot be obtained in a timely manner or if the costs of lumber increased significantly.

Fluctuations in quarterly and annual operating results may make it difficult to predict future performance:

Quarterly and annual operating results could fluctuate in the future due to a variety of factors, some of which are beyond management’s control. As a result of quarterly fluctuations, it is important to realize quarter-to-quarter comparisons of operating results are not necessarily meaningful and should not be relied upon as indicators of future performance.

Shareholders could experience significant dilution:

The Company is authorized to issue up to 10,000,000 shares of preferred stock, without par value per share.  As of the date of this Annual Report, no shares of preferred stock have been issued.  The Company’s preferred stock may bear such rights and preferences, including dividend and liquidation preferences, as the board of Directors may fix and determine from time to time.  Any such preferences may operate to the detriment of the rights of the holders of the Common Stock and would cause dilution to these shareholders.

The Company could lose its significant customers:

The top ten customers of the Company represent 49% of its business.  The Company would experience a significantly adverse effect if these customers were lost and could not be replaced.

The Company could experience delays in the delivery of its products:

The Company purchases its products from other vendors and a delay in shipment from these vendors to the Company could cause significant delays in delivery to the Company’s customers. This could result in a decrease in sales orders to the Company.

A loss of the bank credit agreement could impact future liquidity:

The Company currently maintains a line of credit with U.S. Bank in the amount of $8 million. A loss of this credit line could have a significantly adverse effect on the liquidity of the Company.

The limited daily trading volume of the Company’s common stock could make it difficult for investors to purchase additional shares or sell currently held shares in the open market:

The shares of the Company currently trade within the NASDAQ system in the United States and on the Toronto Stock Exchange in Canada. The average daily trading volume of the Company’s common stock is 500 shares within the NASDAQ system and significantly less on the Toronto Stock Exchange.  With this limited trading volume investors could find it difficult to purchase or sell the Company’s common stock.

 Item 3 – Quantitative and Qualitative Disclosures about Market Risks:

Interest Rate Risk

The Company does not have any derivative financial instruments as of February 28, 2003.  However, the Company is exposed to interest rate risk.

The Company’s interest income and expense are most sensitive to changes in the general level of U.S. interest rates.  In this regard, changes in U.S. interest rates affect the interest earned on the Company’s cash equivalents as well as interest paid on debt.

The Company has a line of credit whose interest rate is based on various published rates that may fluctuate over time based on economic changes in the environment.  The Company is subject to interest rate risk and could be subject to increased interest payments if market interest rates fluctuate.  The Company does not expect any change in the interest rates to have a material adverse effect on the Company’s results from operations.

Foreign Currency Risk

Management does not expect foreign currency exchange rates to significantly impact the Company in the future as all of the Company’s business operations are in the United States.

Item 4. Controls and Procedures

a)

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-14 (c) promulgated under the Securities Exchange Act of 1934, as amended, within 90 days of the filing date of this amended report.  Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.

b)

There have been no significant changes (including corrective actions with regard

to significant deficiencies or material weaknesses) in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in paragraph a) above.

Part II – OTHER INFORMATION

Item 1.

 Legal Proceedings

---No Disclosure Required---

Item 2.

 Changes in Securities

At a Special Meeting held on February 17, 2003, shareholders approved a special resolution authorizing the alteration of the outstanding capital of the Company as follows:

a)

By subdividing the issued 1,025,605 Common Shares without par value, all of which are fully, paid, on the basis of three (3) shares to be received for every two (2) shares held so that the number of Common Shares outstanding was increased from 1,025,605 to 1,538,408.

Shareholders of the Company kept the share certificates they had and the Company provided shareholders of record, as of the close of business on February 28, 2003, with additional share certificates.

At the same Special Meeting held on February 17, 2003, a resolution was also passed approving the purchase of up to 100,000 Common Shares by the Company’s Employee Stock Ownership Plan.

Item 3.

 Default Upon Senior Securities

---No Disclosure Required---       

Item 4.

 Submission of Matters to a Vote of Securities Holders

1. The Company conducted an Annual Meeting on January 10, 2003. The matters voted upon, together with the results of voting were as follows:

The following persons were elected to fill the vacancies on the Board of Directors to serve until the year 2004 Annual Meeting of the Shareholders and until their successors shall be duly elected:

To appoint Davidson and Company as auditors and to authorize the Directors to fix the remuneration.

2. The Company conducted a Special Meeting on February 17, 2003 where shareholders approved a special resolution authorizing the alteration of the outstanding capital of the Company as described above and the shareholders approved a second resolution approving the purchase of up to 100,000 share by the Company’s Employee Stock Ownership Plan.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Jewett-Cameron Trading Company Ltd.

(Registrant)

Dated: April 14, 2003   

/s/ Donald M. Boone

Donald M. Boone, President/CEO/Director

                                                                        /s/ Michael C. Nasser

                                                                        Michael C. Nasser, Corporate Secretary

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald M. Boone, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Jewett Cameron Trading Company Ltd;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”), and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date:

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 14, 2003   

                /s/ DONALD M. BOONE

Donald M. Boone, President/CEO/Director

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael C. Nasser, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Jewett Cameron Trading Company Ltd;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operation and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a.

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b.

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”), and

c.

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date:

5.

The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b.

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.

The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: April 14, 2003   

                 /s/ MICHAEL C. NASSER

Michael C. Nasser, Corporate Secretary