JEWETT CAMERON TRADING CO LTD - Quarter Report: 2004 May (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2004

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 May 31, 2004.  Common Stock, no par value     

1,465,858 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)

MAY 31, 2004

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

(Unaudited - Prepared by Management)

- Continued -

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

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

(Unaudited - Prepared by Management)

Nature of operations (Note 1)

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

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF INCOME

(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 disclosure with respect to cash flows (Note 14)

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)

May 31, 2004

1.

NATURE OF OPERATIONS

Jewett-Cameron Trading Company Ltd. and subsidiaries (the “Company” or “Jewett”) 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, Portland, 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 in the United States; as an importer and distributor of pneumatic air tools and industrial clamps in 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 consolidated financial statements do not include all disclosures required by generally accepted accounting principles in the United States of America and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended August 31, 2003.  The results of operations for the period ended May 31, 2004 are not necessarily indicative of the results to be expected for the year ending August 31, 2004.

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 consolidated financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Cash and cash equivalents

Cash and cash equivalents include highly liquid investments with original maturities of three months or less.  At May 31, 2004, cash and cash equivalents consisted of cash held at financial institutions.

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 overdue.

Inventory

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

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:

Impairment of long-lived assets and long-lived assets to be disposed of

Long-lived assets and certain identifiable recorded intangibles 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.

Foreign exchange

The Company's functional currency for all operations worldwide is the U.S. dollar.  The Company does not have non-monetary or monetary assets and liabilities that are in a currency other than the U.S. dollar.  Any income statement transactions in a foreign currency are translated at average rates for the year.  Gains and losses from translation of foreign currency transactions into U.S. dollars 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)

May 31, 2004

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Net income per share

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

The net income per share data for the period ended May 31, 2004 is summarized as follows:

⁽¹⁾Restated for the 3:2 stock split (Note 9).

Stock option plan

Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”) 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” (“APB 25”) 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 No. 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)

May 31, 2004

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

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 SFAS No. 123 the Company determined compensation costs based on the fair value at the grant date for its stock options, net income per share would have been reduced to the following pro-forma amounts:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Comprehensive income

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

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 financial institutions.

Accounts receivable / Income taxes receivable / Note receivable

The carrying amounts approximate fair value due to the short-term nature and historical collectability.

Bank indebtedness

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

Accounts payable and accrued liabilities

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

Notes payable

The fair value of the Company’s notes payable is estimated based on current rates offered to the Company for similar debt of the same remaining maturities.

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

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Income taxes

Income taxes are provided in accordance with Statement of Financial Accounting Standards 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.

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.

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, title passes, 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.

Recent accounting pronouncements

               In January 2003, FASB issued Financial Interpretation No. 46 “Consolidation of Variable Interest Entities” ("FIN 46") (revised in December 17, 2003).  The objective of FIN 46 is to improve financial reporting by companies involved with variable interest entities.  A variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both.  FIN 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest.  The consolidation requirements of FIN 46 apply immediately to variable interest entities created after December 15, 2003.  The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after March 15, 2004.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

3.

INVENTORY

4.

NOTE RECEIVABLE

The note receivable is due on demand and bears interest at prime plus 1%.  The note was assumed from Greenwood Forest Products, Inc. during the year ended August 31, 2003 in exchange for a note payable which is included in the notes payable balance as of  May 31, 2004.

5.

PROPERTY, PLANT AND EQUIPMENT

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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

6.

DEFERRED INCOME TAXES

Deferred income taxes of $95,700 (August 31, 2003 - $95,700) relate principally to temporary differences between the accounting and tax treatment of income, expenses, reserves and depreciation.

7.

BANK INDEBTEDNESS

The 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.

8.

NOTES PAYABLE

The notes are due to the former shareholders of Greenwood Forest Products, Inc. for the inventory purchases completed during the year ended August 31, 2003.  The amounts were converted from trade payable to notes payable during the year ended August 31, 2003.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

9.

CAPITAL STOCK

Common stock

Holders of common stock are entitled to one vote for each share held.  There are no restrictions that limit the Company's ability to pay dividends on its common stock.  The Company has not declared any dividends since incorporation.

During the period ended May 31, 2004, the Company issued 6,000 shares, pursuant to exercise of stock options for cash proceeds of $26,474.

On February 28, 2003, the Company implemented a 3:2 stock split on its common shares.  At that date, the number of common 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 May 31, 2004 and May 31, 2003, the Company repurchased Nil and 5,400 (8,100 post 3:2 stock split) shares, respectively, at an aggregate cost of $Nil and $47,704, respectively.

10.

STOCK OPTIONS

The Company has a stock option program 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 Toronto Stock Exchange, 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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

10.

STOCK OPTIONS (cont’d…)

At May 31, 2004, employee incentive stock options were outstanding enabling the holders to acquire the following number of shares:

Following is a summary of the status of the plan:

Following is a summary of the status of options outstanding at May 31, 2004:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

11.

CONTINGENT LIABILITIES AND COMMITMENTS

a)

During fiscal 2002, the Company entered into a purchase agreement to acquire inventory over a 15 month period           with an initial estimated value of $7,000,000 from Greenwood Forest Products Inc.  During fiscal 2003 the Company completed the final phase of the inventory acquisition.  As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased.  The Company is currently in dispute with the holders of the notes as to the final amounts owing and accordingly has recorded its estimate of the amounts owing based on information available to it as at May 31, 2004 and August 31, 2003.  In the event that resolution of the dispute results in a change to the promissory notes, any gain or loss will be recognized in the period that the final determination of the amount is made. However, any   potential change is currently not determinable at this time.

b)

The Company leases office premises pursuant to an operating lease which expires in 2005. For the periods ended May 31, 2004 and May 31, 2003, rental expense was $136,382 and $135,609 respectively.

Future minimum annual lease payments are as follows:

c)

At May 31, 2004, the Company had an un-utilized line-of-credit of approximately $ 2,400,000 (Note 7).

12.

SEGMENT INFORMATION

The Company has four principal reportable segments: the sale of lumber and building materials to home improvement centres in the United States; the processing and sale of industrial products to original equipment manufacturers in the United States; the sale of pneumatic air tools and industrial clamps in the United States; and the processing and sale of agricultural seeds in the United States.

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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

12.

SEGMENTED INFORMATION (cont'd…)

Following is a summary of segmented information for the periods ended May 31, 2004 and May 31, 2003:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

May 31, 2004

12.

SEGMENTED INFORMATION (cont'd…)

For the nine month periods ended May 31, 2004 and May 31, 2003, the Company made sales of $6,314,020 (2003 - $4,316,412) to  a customer of the building materials segment which were in excess of 10% of total sales for the nine month period.

13.

CONCENTRATIONS

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 May 31, 2004 and August 31, 2003, no customers 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.

Volume of business

The Company has concentrations in the volume of purchases it conducts with its suppliers.  For the period ended May 31, 2004, the Company had two suppliers totalling $6,480,563 and $3,741,428 that accounted for purchases greater than 10% of total purchases in the industrial wood products segment.  For the period ended May 31, 2003, there were two suppliers totalling $8,906,336 that accounted for purchases greater than 10% of total purchases.

14.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

There were no significant non-cash transactions for the nine month periods ended May 31, 2004.  Significant non-cash transaction for the nine month period ended May 31, 2003 consisted of the Company acquiring inventory and issuing  a note payable in the amount of $2,889,560.

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 May 31, 2004 and August 31, 2003 and its results of operations and its cash flows for the three-month periods ended May 31, 2004 and May 31, 2003 and for the nine-month periods ended May 31, 2004 and May 31, 2003 in accordance with US GAAP.  Operating results for the three-month period ended May 31, 2004 and the nine-month period ended May 31, 2004 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2004.

The Company’s number of days in receivables was approximately 38 days as at May 31, 2004 and at August 31, 2003 the number of days in receivables was 40.  Overall, in the past year, the number of days in receivables has decreased due to the fact that the Company’s product mix has changed resulting in shorter receivable periods.

The Company’s number of days in inventory was approximately 46 as at May 31, 2004 in comparison to approximately 57 days as at August 31, 2003.  The primary reason for the decrease is due to the Company having a higher level of inventory at August 31, 2003 as compared to May 31, 2004.

RESULTS OF OPERATIONS

Three Months Ended May 31, 2004 and May 31, 2003

Jewett Cameron’s operations are classified into four principle industry segments: the sale of lumber and building materials to home improvement centers in the United States; the processing and sale of industrial products to original equipment manufacturers in the United States; the sale of pneumatic air tools and industrial clamps in the United States; and, the processing and sale of agricultural seeds in the United States. Sales of building materials have traditionally consisted of wholesale sales of lumber and building materials in the United States. This has transitioned to include both wood and non-wood items.  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, green houses, dog kennels, outdoor umbrellas, etc. These sales occur year-round; however, they are greater in the spring and summer months. Sales and processing of industrial products to original equipment manufacturers consist of wholesale sales of 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% of Greenwood Product’s sales are attributable to the recreational boating industry and are generally stronger during the spring and summer months. Sales of pneumatic air tools and industrial clamps 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.   The processing and sale of agricultural seeds consists 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 occurs during this time of year. The Company’s major distribution centers are located in North Plains, Oregon and Ogden, Utah.

For the third quarter of the current fiscal year, ended May 31, 2004, sales increased 34% to $20,191,769 compared to $14,998,178 for the same quarter of the previous year.

The principal reasons for the 34% increase in sales were primarily the result of changes, which were instigated during the previous fiscal year. These changes included the introduction of new products in the area of home improvement sales; reorganizations at Jewett Cameron Seed Company; and, higher prices of the products sold through Greenwood Products. The higher prices of the products sold through Greenwood Products is a direct result of higher raw material costs for these items. The new products introduced through Jewett Cameron Lumber Company included dog kennels; outdoor gates; mobile outdoor umbrellas; green houses; and, storage buildings. The reorganization at Jewett Cameron Seed Company consisted of some changes in staff responsibilities and a reduction in line management.  

Sales of home improvement products were $5,007,931 for the third quarter, an increase of slightly over 106% compared to sales of $2,584,607 for the third quarter of last year. Management attributes this increase to the introduction of the new products as described above.

Revenues from the sales and processing of industrial products were $14,079,991 for the third quarter, an increase of 19% compared to revenues of $11,836,029 for the third quarter of last year. Management attributes this increase to higher raw material costs.

Sales of pneumatic tools and industrial clamps were $273,492 for the third quarter compared to $242,389 for the third quarter of last year, an increase of 13%. The Company hired new sales personnel since 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 continues to result in the stronger sales evidenced during the third quarter of Fiscal 2004.

Sales of processed seeds and grain were $830,355 for the third quarter compared to $335,153 for the third quarter of last year, an increase of slightly over 147%. 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 increase in sales, which occurred in the third quarter of Fiscal 2004 as compared to the third quarter of Fiscal 2003, was due primarily to the reorganization which occurred within the sales organization at Jewett Cameron Seed Company.

Cost of sales accounted for 87% of sales for the third quarter compared to 86% for the third quarter of last year, an increase of 1%.  The slight increase was primarily attributed to lower margins for home improvement products and seed processing.

Operating expenses accounted for 10% of sales for the third quarter compared to 11% for the second quarter of last year, a decrease of 1%.  The decrease was primarily due the decrease in wages and employee benefits resulting from the reorganization changes described earlier. General and administrative expenses for the Company were $612,253 for the third quarter, which was an increase from $442,211 for the third quarter of the last fiscal year.  The primary reason for the increase of $170,042 was costs related to the higher level of sales for the current quarter.

Income tax expense for the quarter was $269,300 in comparison to $105,101 for the third 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 net income for the quarter was $384,642 which represents a 78% increase over the third quarter of the last fiscal year when net income was $215,723.  The increase in net income was due primarily to higher sales and slightly higher profit margins in the industrial wood products segment. .

The diluted net income per share was $0.25 for the third quarter of Fiscal 2004 compared to diluted net income per share of $0.14 for the third quarter of Fiscal 2003.

Nine Months Ended May 31, 2004 and May 31, 2003

For the first nine months of the current fiscal year ended May 31, 2004, sales increased 29% to $52,557,506 compared to $40,497,696 for the same period of the previous fiscal year.

The principal reasons for the 29% increase in overall sales was primarily the result of the changes which were instigated during the prior fiscal year as described in the discussion relating to the results of operations for the three-month period ended May 31, 2004 and May 31, 2003.  

Sales of home improvement products were $9,902,883 for the first nine months of Fiscal 2004, an increase of slightly over 96% compared to sales of $5,032,048 for the first nine months of Fiscal 2003. As stated earlier, management attributes the increase in the sales of home improvement products to the additions of the new product line as described earlier.

Revenues from the sales and processing of industrial products were $38,050,898 for the first nine months of the current year, an increase of 15% compared to revenues of $33,113,434 for the first nine months of last year. Management attributes this increase to higher raw material costs as described earlier.

Sales of pneumatic tools and industrial clamps were $748,815 for the period as compared to $668,414 for the same period of last year, an increase of about 12%. As was the case for the third quarter of Fiscal 2004 as compared to the third quarter of Fiscal 2003, the efforts of the newly hired sales staff resulted in the stronger sales evidenced during this period as compared to the prior like period.

Seed processing services and sales were $3,854,910 for the first nine months of the current fiscal year compared to $1,683,800 for the first nine months of the last fiscal year, an increase of 129%.  As stated earlier, the increase in sales, which occurred in the first nine months of the current fiscal year as compared to the first nine months of Fiscal 2003, was due primarily to organizational changes, which were implemented within Jewett-Cameron Seed Company. These changes consisted of the termination of some staff members and some reassignment of duties for the remaining staff.

Cost of sales accounted for 88% of sales for the nine months of the current year compared to 85% for the nine-month period of the last year, an increase of 3%.  The increase was attributed to lower margins associated with the products sold through Jewett Cameron Lumber Company and Jewett Cameron Seed Company.

Operating expenses (including the categories of “general and administrative”, “depreciation and amortization” and “wages and employee benefits”) for the Company were $5,512,282 for the first nine months of Fiscal 2004 as compared to $5,247,664 for the first nine months of the prior fiscal year.  These expenses accounted for 10% of sales for the nine-month period of the current year compared to 13% for the nine-month period of the last year, a decrease of 3%.  The decrease was due to the Company’s restructuring of some of its staff functions and a reduction in expenses as described below.

Income tax expense for the nine-month period of the current year was $284,000 in comparison to $232,301 for the nine-month period of last year.  The Company estimates income tax expense for each quarter based on combined federal and state rates that are currently in effect.  

Net income for the nine months ended May 31, 2004 was $450,867, which represents a 12% increase over the nine months ended May 31, 2003 when net income was $402,906.  The increase in net income was due primarily to higher sales and slightly higher profit margins with products sold within the Company’s industrial wood products segment..

Diluted earnings per share were $0.30 for the first nine months of Fiscal 2004 compared to $0.27 for the first nine months of Fiscal 2003, an increase of 11%.

LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2004 the Company had working capital of $5,321,458, which represented an decrease of $2,049,097 as compared to the working capital position of $7,370,555 as of August 31, 2003.  The primary reason for the decrease in working capital was an increase in bank indebtedness and accounts payable in the amount of $1,279,354 and the reclassification of Notes Payable of $1,899,292 to Current Liabilities for the nine-month period ended May 31, 2004.  The increase in indebtedness was a result of the higher level of borrowing required to support the higher level of sales. During the first nine months of Fiscal 2004, cash and cash equivalents increased by $183,165; accounts receivable, net of allowance increased by $1,340,120 due to the higher level of sales; and, prepaid expenses increased by $27,576. Inventory increased by $122,954 and a note receivable decreased by $15,241.

Accounts receivable and inventory represented 95% 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 May 31, 2004 of $5,586,682 and an outstanding balance as of August 31, 2003 of $6,007,088.

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.

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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;

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

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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 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 Risk

Interest Rate Risk

The Company does not have any derivative financial instruments as of May 31, 2004.  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 and Use of Proceeds

---No Disclosure Required---

Item 3.

 Defaults 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 16, 2004. 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 2005 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.

Item 5.  Other Information

---No Disclosure Required---

Item 6.  Exhibits and Reports on Form 8-K

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: July 16, 2004

            /s/ Donald M. Boone

Donald M. Boone, President/CEO/Director

Dated:  July 16, 2004                                      /s/ Michael C. Nasser

                                                                        Michael C. Nasser, Corporate Secretary