JEWETT CAMERON TRADING CO LTD - Quarter Report: 2006 May (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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 MAY 31, 2006.

[  ]

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  000-19954

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes  [  ]  No  [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  [ ]  No  [X]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, no par value – 1,532,359 Shares outstanding at May 31, 2006.           

#

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, 2006

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in U.S. dollars)

(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)

(Prepared by Management)

Nature of operations (Note 1)

Subsequent event (Note 15)

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

JEWETT-CAMERON TRADING COMPANY LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Expressed in U.S. dollars)

(Unaudited - Prepared by Management)

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

JEWETT-CAMERON TRADING COMPANY, LTD, AND SUBSIDIARIES

CONSOLIDATED STATEMENT 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.

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, 2006

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. The Company operates as a wholesaler of lumber and building materials to home improvement centres located primarily in the Pacific region 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 interim financial statements have been prepared in conformity with generally accepted accounting principles of the United States of America (“US GAAP”), which are not materially different from Canadian generally accepted accounting principles (“Canadian GAAP”).  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 interim financial statements do not include all disclosures required by US GAAP and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended August 31, 2005.  The results of operations for the period ended May 31, 2006, are not necessarily indicative of the results to be expected for the year ending August 31, 2006.

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, 2006

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, 2006, and August 31, 2005, 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 provides for estimated losses on accounts receivable based on prior bad debt experience and a review of existing receivables.  Based on these factors, there is a provision for doubtful accounts of $nil and $nil for May 31, 2006, and August 31, 2005 respectively.

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:

Asset retirement obligations

The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the long-lived assets.  The Company also records a corresponding asset which is amortized over the life of the asset.  Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost).  

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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

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 rates approximating those in effect at the date of the transaction.  Gains and losses from translation of foreign currency transactions into U.S. dollars are included in current results of operations.

Earnings per share

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

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

Stock option plan

In December 2004, the FASB issued SFAS No. 123R (revised 2004) Share-Based Payment. This statement replaces SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees. This statement requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. Pro forma disclosure is no longer an alternative. This statement establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all entities to apply a fair-value-based measurement method in accounting for share-based payment transactions with employees. This statement uses the terms compensation and payment in their broadest senses to refer to the consideration paid for goods or services, regardless of whether the supplier is an employee.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Stock option plan (cont’d…)

The Company has adopted SFAS No. 123R during the period ended February 28, 2006 and accordingly will begin recognizing the cost of stock options using the modified prospective application method whereby the cost of new awards and awards modified, repurchased or cancelled after the required effective date and the portion of awards for which the requisite service has not been rendered (unvested awards) that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date.  The Company expects the adoption of this standard will have a material impact on its financial statements assuming employee stock options are granted in the future. For fiscal year 2006, however, we do not expect  the incremental increase to compensation costs to be significant as no options have been granted during fiscal 2006 to date.

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 / 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 / Accrued liabilities / Income taxes payable

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

Promissory note

The fair value of the promissory note is determined by discounting the future contractual cash flows under current financing arrangements at discount rates which represent borrowing rates presently available to the Company for loans with similar terms and maturity.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Financial instruments (cont’d)

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

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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

2.

SIGNIFICANT ACCOUNTING POLICIES (cont'd...)

Reclassifications

Certain reclassifications have been made to the prior period financial statements to conform to the classifications used in the current year.

Recent accounting pronouncements

In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement No.  151,  "Inventory  Costs",  to  amend  the guidance in Chapter 4, "Inventory  Pricing",  of FASB Accounting Research Bulletin No. 43, "Restatement And  Revision Of Accounting Research Bulletins", which will become effective for  the Company in  fiscal  year  2006. Statement 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage).  The Statement requires that those items be recognized as current-period charges. Additionally, Statement 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities.

In June 2005, the FASB issued Statement 154, “Accounting Changes and Error Corrections,” which replaces APB Opinion 20 and FASB Statement 3. Statement 154 changes the requirements for the accounting and reporting of a change in accounting principle. Opinion 20 previously required that most voluntary changes in accounting principles be recognized by including the cumulative effect of the new accounting principle in net income of the period of change. Statement 154 now requires retrospective application of changes in accounting principle to prior period financial statements, unless it is impractical to determine either the period-specific effects or the cumulative effect of the change. The statement is effective for fiscal years beginning after December 15, 2005.

The Company believes that the adoption of these pronouncements will not affect the financial  position  or  results  of  operations.

3.

INVENTORY

4.

NOTE RECEIVABLE

The note receivable is due on demand and bears interest at prime plus 1%.  

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

5.

PROPERTY, PLANT AND EQUIPMENT

During the current period, the Company sold its distribution facility located in Ogden, Utah (which included the land and building) to an unrelated party.  The Company received gross proceeds of $660,000, and recognized a gain of $599,825 during the current period.

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.

6.

DEFERRED INCOME TAXES

Deferred income taxes of $176,700 (August 31, 2005 - $177,100) 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.  The weighted average interest rate for the period was 7.74% (2005 -  5.20%).

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

8.

PROMISSORY NOTE

The promissory note is secured by the property located in North Plains, Oregon.

The aggregate principal repayments required in each of the next five years, assuming the note  renewed under similar terms and conditions, will be as follows:

                At June 15, 2010, the amount of principal at renewal will be approximately $1,876,000.

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 nine month period ended May 31, 2006, the Company issued 52,500 common shares pursuant to stock options exercised for proceeds of $117,500 (proceeds were received during the year ended August 31, 2005).

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 ("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.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

10.

STOCK OPTIONS  (cont’d…)

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.

At May 31, 2006, 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, 2006 (unaudited):

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

11.

CONTINGENT LIABILITIES AND COMMITMENTS

a)

During fiscal 2002, the Company entered into a purchase agreement to acquire inventory over a 3 year period with an initial estimated value of $7,000,000 from Greenwood.  During the year ended August 31, 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 note as to the final amounts owing, and believes that there are no further amounts owing. 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 January, 2007.  For the nine month periods ended May 31, 2006 and May 31, 2005, rental expense was $142,775 and $143,213 respectively.

Future minimum annual lease payments are as follows:

c)

At May 31, 2006, the Company had an un-utilized line-of-credit of approximately $4,723,555 (Note 7).

12.

SEGMENT INFORMATION

The Company has four principal reportable segments: the sale of lumber and building materials to home improvements 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, 2006

12.

SEGMENT INFORMATION (cont'd…)

Following is a summary of segmented information for the periods ended May 31, 2006 and May 31, 2005:

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

12.

SEGMENT INFORMATION (cont'd…)

For the nine month periods ended May 31, 2006 and May 31, 2005, the Company made sales of $7,333,319 (2005 - $7,716,574) to a customer of the industrial wood products 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, 2006 and August 31, 2005, 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 nine month period ended May 31, 2006, the Company had four suppliers totalling $5,118,766, $4,290,335, $4,790,783 and $4,036,858 that accounted for purchases greater than 10% of total purchases in the industrial wood products segment and lumber and building material segment.  For the nine month period ended May 31, 2005, there were two suppliers totalling $6,480,563 and $3,741,428 that accounted for greater than 10% of total purchases in the industrial wood products segment.

14.

SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

The significant non-cash transaction for the nine month period ended May 31, 2006 was the issuance of 52,500 common shares for stock options exercised in the amount of $117,500 (of which the proceeds were received during the year ended August 31, 2005).

There were no significant non-cash transactions for the nine month period ended May 31, 2006 and 2005.

JEWETT-CAMERON TRADING COMPANY LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in U.S. Dollars)

(Unaudited - Prepared by Management)

MAY 31, 2006

15.

SUBSEQUENT EVENT

The Company has filed a registration statement whereby it proposes to raise up to $10,000,000, by issuing 500,000 common shares at $20.00 a share.  The offering is subject to approval of the registration statement with the Securities and Exchange Commission.

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, 2006 and August 31, 2005 and its results of operations and its cash flows for the nine month periods ended May 31, 2006 and May 31, 2005 in accordance with US GAAP.  Operating results for the nine month period ended May 31, 2006 are not necessarily indicative of the results that may be experienced for the fiscal year ending August 31, 2006.

The Company’s number of days in receivables was approximately 31 days as of May 31, 2006 and at August 31, 2005 the number of days in receivables was 31.

The Company’s number of days in inventory was approximately 40 as of May 31, 2006 in comparison to approximately 43 days as of August 31, 2005.

RESULTS OF OPERATIONS

Our operations are classified into four principal 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 ours and consist primarily of home improvement products such as fencing materials, dimension lumber, 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. A significant portion 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. Our major distribution center is located in North Plains, Oregon. In December 2005, our distribution center in Ogden, Utah was sold and operations consolidated at the North Plains facility.

Three Months Ended May 31, 2006 and May 31, 2005

For the third quarter ended May 31, 2006, sales increased 7.1% to $20,557,496 compared to $19,184,172 for the same quarter of the prior fiscal year.

The principal reason for the increase in sales was higher sales in our Lumber and Building materials category, which increased to $6,702,508 from $4,363,047. This was attributable to growing sales of its newer products. In addition, Seed processing and sales increased to $1,168,741 from $1,065,678  due to a favorable pricing environment.

Sales in our Greenwood Products business declined from $13,469,901 to $12,448,820 as a result of competitive pricing pressure in one of Greenwood’s product lines.  Industrial Tool sales declined to $237,427 from $285,546 for the third quarter of the prior year which is consistent with our shift of emphasis away from higher volume/lower margin products to higher margin specialty products.

Cost of sales accounted for 86% of sales for both the third quarter of the current fiscal year and the third quarter of the prior fiscal year.  The Company continues to see stable costs in relation to revenue increases due to a shift in its sales and marketing from lower margin commodity products to higher margin specialty products in the lumber and building materials business segment.

Operating expenses accounted for 9.7% of sales for the third quarter of the current fiscal year compared to 11% for the third quarter of the prior fiscal year. The lower Wages and Employee benefits of $1,195,647 in the current quarter compared to $1,349,415 was due to  prior year’s reorganizational changes. General and Administrative expenses of $743,131 compared to $670,384 in the prior year’s quarter were higher due to additional support costs related to the introduction and marketing of new products in the lumber and building materials segment.

The net income for the third quarter of the current fiscal year was $560,502 compared to net income of $343,097 in the third quarter ended May 31, 2005.  The increase in net income was due primarily to higher profit margins in both the lumber and building materials and seed processing segments. Lower Interest Expense of ($53,367) compared to ($124,139) in the prior year’s quarter also contributed to the higher net income, although overall net income was affected by higher Income Tax expense of ($326,000) compared to ($182,000).  The diluted earnings per share was $0.36 for the third quarter of the current fiscal year ended May 31, 2006 compared to income per diluted share of $0.22 for the third  quarter of the prior year ended May 31, 2005.

Nine Months Ended March 31, 2006 and May 31, 2005

For the first nine months of the current fiscal year, ended May 31, 2006, sales totaled $57,730,796, an increase of $1,061,569, or 1.8%, from sales during the same period in the prior fiscal year of $56,669,227. The increase in sales was due to higher sales in the lumber and building material segment and the seed processing and sales segments.  This is partially offset by lower results in industrial wood products and industrial tools.

Lumber and building material sales rose 41.6% to $14,261,103 from $10,070,112. The higher sales were due to the new products introduced within the last several years as the Company shifted away from lower margin commodity products to higher margin specialty products. Seed processing and sales rose to $4,296,768 from $3,644,011, an increase of 17.9%. The higher sales were due to a favorable pricing environment as well as a good harvest during the growing season.

Industrial wood products sales fell to $38,480,180 from $42,111,051 recorded in the first nine months of the prior fiscal year, a decline of 8.6%. The primary reason for the decline was lower prices on certain of the Company’s products due to a very competitive pricing environment led by a competitor. In response, the Company is working to source lower cost alternatives for these products as well as continuing to diversify within the segment by adding higher margin products. Sales of industrial tools fell to $692,745 from $844,053, a decline of 17.9%, as the Company is currently shifting its sales model in this segment away from higher volume/lower margin products to higher margin specialty products.

Cost of sales accounted for 85% of sales for the first nine months compared to 86% for the first nine months of the prior fiscal year, a decrease of 1%. The decline was attributable to the continued marketing and sales emphasis on higher margin products in several of the Company’s business segments.        

Operating expenses accounted for 10.7% of sales for the first nine months compared to 11.3% for the first nine months of the last fiscal year. Lower wages and employee benefits due to employee reorganization expenses recorded in the prior year’s period were offset by higher general and administrative expenses in the current nine month period. These higher expenses were related to organizational and marketing support for the Company’s new products within the industrial wood products and lumber and building supply segments. Overall operating expenses are anticipated to remain at a similar level for the remainder of the current fiscal year.

The net income for the nine months ended May 31, 2006 was $1,728,619, or $1.09 per diluted share, compared to $615,556, or $0.40 per diluted share, in the prior year’s period. The 181% increase was due to improved profit margins on sales in both industrial wood products and lumber and building material segments, as well as a one-time gain of $599,825 from the sale of the Company’s Ogden, Utah distribution center. The net income was also higher due to lower interest expense of ($167,493) compared to ($364,765) as the Company paid down its bank indebtedness during the current period. Due to the higher income from operations and the gain on the sale of property, the Company had a higher Income Tax Expense of ($1,035,000) in the current nine month period compared to ($347,000) in the prior year’s period.

LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2006 , the Company had working capital of $10,917,029, which represented an increase of $1,921,137 as compared to the working capital position of $8,995,892 as of August 31, 2005.  The primary reasons for the increase in working capital were slightly higher Accounts Receivable as well as lower Bank Indebtedness. Bank Indebtedness fell to $76,446 from $2,077,063 as management used cash generated from sales and the sale of property to reduce the amount borrowed under its bank line of credit. A total of $729,383 in cash used to pay income taxes during the current nine month period compared to $406,210 in the same period in the prior year.

Accounts receivable and inventory represented 93% 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 $5.0 million of which there was an outstanding balance on May 31, 2006 of $76,446 compared to an outstanding balance as of August 31, 2005 of $2,077,063. The amounts outstanding under the Company’s bank line are primarily used seasonally to purchase inventory ahead of the highest sales demand which are typically Spring and Summer. The amount outstanding under the line is then reduced by cash generated from sales. Management recently voluntarily reduced the amount of the bank line from $8.0 million to $5.0 million as it was determined that the lower amount was suitable for the Company’s anticipated short-term borrowing requirements. The weighted average interest rate for the current period was 7.74% compared to 5.20% for fiscal period ended August 31, 2005. This increase is consistent with the overall rise of prevailing interest rates in the United States.

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 remainder of 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.

•

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.

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 diving board blanks and scaffolding material, 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 36% of its business, as of the nine month period ended May 31, 2006.  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 $5.0 million. A loss of this credit line could have a significantly adverse effect on the liquidity of the Company.

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, 2006.  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

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 defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e) as of May 31, 2006.  Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported in the periods specified in the Securities and Exchange Commission’s rules and forms.

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended May 31, 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Part II – OTHER INFORMATION

Item 1.

Legal Proceedings

One of the Company’s subsidiaries is a plaintiff in a lawsuit filed in Portland, Oregon, entitled, Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc., et al., Cause No. 05-03-02553 (Multnomah County Circuit Court).  The litigation involves a purchase agreement to acquire inventory from Greenwood Forest Products Inc (“GFP”).  The amount in dispute is approximately $600,000, with a trial date anticipated in the middle of March 2006. The Company is vigorously pursuing the matter and management believes the Company will ultimately succeed on the merits.

The Company does not know of any other material, active or pending legal proceedings against them; nor is the Company involved as a plaintiff in any other material proceeding or pending litigation.  The Company knows of no other active or pending proceedings against anyone that might materially adversely affect an interest of the Company.

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

---No Disclosure Required---

Item 5.

Other Information

---No Disclosure Required---

Item 6.

Exhibits

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Donald Boone

31.2

Certification of Officer pursuant to Section 302 of the Sarbanes-Oxley Act, Daniel R. McDonell.

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Donald Boone

32.2

Certification of Officer pursuant to 18 U.S.C., 1350 (Section 906 of the Sarbanes-Oxley Act), Daniel R. McDonell.

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 7, 2006

/s/  Donald M. Boone

Donald M. Boone, President/CEO/Director

Dated:  July 7, 2006

/s/  Daniel R. McDonell

Daniel R. McDonell, Chief Financial Officer

Dated:  July 7, 2006

/s/  Michael C. Nasser

Michael C. Nasser, Corporate Secretary